PICOHYDROPOWER PROJECT IN THE PHILIPPINES

PICOHYDROPOWER PROJECT IN THE PHILIPPINES SEPTEMBER 2011

NOTICE This publication was prepared as a documentation of all technical and administrative work performed by the Renewable Energy Association of the Philippines (REAP) in cooperation and support from the Evangelischer Entwicklungdienst (EED) and the Nordelbisches Missionszentrum (NMZ) to implement the The Picohydropower Project in the Philippines. No part of this publication may be reproduced in any form or means without prior written permission from REAP, EED, and/or NMZ. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement and/or recommendation by the organizations included. 2011 by EED and NMZ Ms. Judith Meyer Kahrs Project Manager, Info Desk for Climate Justice Northelbian Center for Worldmission and Church World Service (NMZ) j.meyer kahrs@nmz mission.de +4940 8818.1331 Engr. Olegario S. Serafica President, Renewable Energy Association of the Philippines (REAP) acifares@yahoo.com +632 882.0542 or +63917 845.2357

Table of Contents 1. Introduction... 1 2. O bjectives...... 1 3. F ramework and Methodology... 2 a. Stakeholder Dialogues and Consultation... 2 b. c. Community Development and Social Preparation... 2 Technical Design, Procurement, and Installation... 3 d. Capacity Building and Training... 4 e. Marketing, Information, Education, and Communications Development... 4 4. Project Performance and Outcomes... 5 Outcome 1: Main Project Activities... 5 a. Deployment and Installation... 5 b. Site Survey and Evaluation of Potential Communities... 8 c. System Monitoring... 9 d. Community Participation... 9 e. Discussion and Coordination Activities with Key Organizations, Donors, and Other Institutions... 9 Outcome 2: Capacity Building... 10 5. Challenges Encountered and Responses... 11 6. Moving Forward... 15 Final Report V1.0 PAGE i

1. Introduction Although the Millennium Development Goals do not explicitly define the provision of energy services to be one of the eight primary objectives, the inherent link between sustainable energy with environmental and socio economic development initiatives has been recognized and documented, particularly in the Johannesburg Plan of Implementation which emerged from the World Summit on Sustainable Development. According to the plan, ensuring universal access to reliable, affordable, economically viable, socially acceptable, and environmentally sound energy services and resources underpin efforts to considerably reduce the level of poverty to people currently located within rural settlements or communities. One facet of the poverty reduction initiatives by the Philippine government provides for the decentralization of governance in order to ensure the equitable distribution of basic services and strengthen initiatives for rural development to prevent internal migration to urban centers. However, basic services, particularly with respect to the provision of energy remain limited to many rural community inhabitants due to administrative constraints and short sighted delivery mechanisms resulting from inadequate planning, economic constraints, and the reactive stance of the majority of organizations comprising the government and the private sector engaged in the development of energy infrastructur e in the country. The Picohydropower Project in the Philippines has been designed to be implemented as a CDM structured project within the parameters provided by the Gold Standard Methodology due to the potential of family picohydropower systems in enhancing the access of off grid rural households and communities to reliable energy services while reducing CO 2 emissions through the displacement of fossil fuel options, in particular, the utilization of kerosene lamps. CDM effectively reduces investment barriers by increasing economic viability of the project in terms of providing financial support for initial equipment outlay for community deployments through generated emission reduction certificates. During the initial phase of implementation, the Nordelbisches Missionszentrum (NMZ) and the Evangelischer Entwicklungdienst (EED) provide the necessary financial support for project implementation with an agreement that any generated emission reduction certificates from the Project sha ll be transferred to NMZ. The Project has targeted the deployment of at least 75 picohydropower systems with generating capacities ranging from to 1kW for identified rural communities during the initial project implementation period. 2. Objectives The overall objective of the Project is the formulation and implementation of a mechanism which provides assistance and support to rural communities in establishing locally accessible, reliable, and environmentally sound energy facilities through the use of renewable energy resources and technologies, consequently ensuring the sustainable development of households located within these Final Report V1.0 PAGE 1

communities by enhancing access to other socially productive applications which critically affect the inhabitants of the community such as potable water, added educational facilities, information and communication technology systems. 3. Framework and Methodology From lessons learned in the past with regard to the implementation of RE development projects, NMZ and REAP conceptualized a methodology which focuses on the provision of energy infrastructure and services within a wider developmental context in order to ensure the integration of the social, economic, and technical components which determined the necessary operational tasks to be adopted by the community as well as ensure a maximum potential for long term project sustainability. Due to the general absence of community and private organizations within the target sites with the capability of capitalizing and managing the operation of renewable energy systems, collecting user fees, and pursue economic development activities, the Project established institutional linkages with local organizations and government institutions to act as agents or intermediaries within identified target communities. The use of agents or intermediaries serve as a mechanism towards efficiently coordinating the management of all beneficiary communities and provide a methodology for leveraging and complementing available sectoral donations and financial investments from private sector partners to capitalize the acquisition of renewable energy equipment. The current implementation framework utilized by REAP operationalizes the methodology by accomplishing the following project tasks and activities: a. Stakeholder Dialogues and Consultation Activities for the task include the initial and ongoing consultations with target communities and other Project partners to formulate strategies and mechanisms to address any challenges arising during the course of implementation. REAP spearheaded dialogue sessions with key stakeholder organizations, community beneficiaries, and intermediaries to inform and update participants with the objectives, mechanisms, schedules, budget, and expected outcomes of the Project. Subsequent meetings and dialogue sessions serve as a mechanism towards periodically monitoring and evaluating the accomplishments of the intermediaries and community beneficiaries, as well as to formulate strategies and action plans to ensure technical and financial sustainability. b. Community Development and Social Preparation The initial set of tasks for community development involves the identification and screening of communities for eligibility and inclusion into the Project based on the screening criteria provided in the PDD. Final Report V1.0 PAGE 2

Additional evaluation and reference points based on analysis of secondary data, direct consultation with stakeholders, and anecdotal interviews within the target communities have been taken into consideration by REAP, such as the available energy resources, household density, potential household connections, distance from energy resource, and other productive livelihood and social applications that may be utilized by the intermediary and beneficiary communities in supporting the operation of the picohydropower system. Social preparation tasks and activities within the selected communities involves the conduct of further dialogue, consultative meetings, and negotiation of agreements and contractual obligations to verify that the direction of the proposed community development initiatives of the Project were consistent with the needs, interests, capability, and resources of the community end users. Typically, the decisive factors in pushing through with the deployment of each picohydropower system were based on the willingness of the target community to provide a counterpart contribution through labor equity, site security, management of local system operations, and a commitment with the intermediary or agent towards viable cost recovery. c. Technical Design, Procurement, and Installation Once community development plans and social preparation activities have commenced, tasks shifted towards the formulation of cost effective technical designs for the picohydropower system, equipment procurement, and the installation of the system within the target community with the assistance of the local agent and supervised by REAP. For the procurement of equipment, the Project recognizes the need to provide financial support and delivery mechanisms to marginalized rural communities in the acquisition of capital equipment. However, the utilization of support mechanisms such as grants and subsidies to address the need for the rapid deployment of renewable energy infrastructure and services may be observed to be advantageous in the short term but may be more detrimental to the Philippine RE market in the long term due to its coincident tendency to distort market prices of available capital equipment along with the expectations and interests of community end users. Considering this scenario, the Project provides for the acquisition of capital equipment through a flexible term loan where the capital cost for the acquisition of equipment would be taken on initially by NMZ and partner organizations. 1 Loan payments and recurring costs incurred for operations, maintenance, management, and eventual replacement or expansion of the installed picohydropower systems shall be expected to be covered by recipient communities through periodic installments to maximize the sense of ownership and accountability of each participating 1 Fi nancial support for equipment procurement during the initial phase of the Picohydropower Project has been provided by Nordelbisches Missionszentrum ( NMZ) and the Evangelischer Entwicklungdienst (EED). The picohydropower turbine generators were sourced from the Vietnam Institute of Material Sciences and delivered in August 2009. Final Report V1.0 PAGE 3

community with respect to the deployed systems or services provided, while reducing the potential for market price distortions. In terms of project implementation in target communities, local intermediaries or agents engaged by REAP supervise the general operation, maintenance, and management of picohydropower systems, including the tariff setting, periodic collection of fees and payments, project coordination, and assistance in the establishment of accounting procedures and other financial arrangements. d. Capacity Building and Training In support of the integrated community development framework, REAP with the assistance of local partners and agents supervising the participating communities target the implementation of a thorough capacity building and training initiative to empower the community recipients in sustainably managing the operation of each picohydropower system, enhance community attributes such as self esteem, associative strengths, resourcefulness, action planning, responsibility/accountability, and to ensure the full commitment, and continuity of the benefits gained from the Project. Community training initiatives of the Project focused on the following areas: RE Technical Training for Operators (Operations, Maintenance, Repair, and User Orientation) Operations and Management Skills (Basic Financial Reporting and Management Orientation) Watershed Protection and Conservation e. Marketing, Information, Education, and Communications Development Due to the low level of utilization and commercialization of picohydropower systems in comparison to other RE technologies, the development of an effective marketing strategy and Information dissemination plan must be emphasized in order to raise the awareness with regard to the advantages posed by the utilization of picohydropower systems for community based RE electrification projects. Towards this end, the REAP has been continuously implementing an information, education, and communications plan to accurately share information among community stakeholders, partners, potential agents or intermediaries, and other interested organizations and institutions. Activities include attendance in exhibitions, project posters, a Project Website (www.reaphil.org), preparation of articles and news items on the project, and the organization of different informational events such as lectures, seminars, and workshops. Final Report V1.0 PAGE 4

4. Project Performance and Outcomes This section provides the outcomes and performance of the Picohydropower Project in the Philippines from inception and launching in January 2008 until the close of the initial phase in June 2011 within the scope of the following expected outputs: Outcome 1: Main Project Activities Initiation of development activities and implementation within the target regions identified by the Project as having a high potential for picohydropower due to the topography, availability of RE resources, and a high actual demand for energy infrastructure and services, focusing on the deployment of at least 75 picohydropower systems. a. Deployment and Installation Of the 75 picohydropower systems targeted during the initial phase of implementation, the Project has been able to deploy 35 picohydropower systems ranging from to 1kW categorized as demonstration and direct community installations. The total capacity of all systems installed within the target regions is 9.3kW, mitigating an estimated 28.25 tons of CO 2 emissions from kerosene lamps per year (Table 4.1) based on the quantity of installed systems and the estimated annual emission reduction per unit type provided by the PDD. 2 Table 4.2 contains the listing of deployed picohydropower systems, including the capacity, beneficiary, and the installation area. Table 4.1: Quantity of installed picohydropower systems and estimated equivalent annual emission reductions System Type Units Installed Installed Capacity, kw Dependable Capacity, kw Annual Offset per Unit, tco2/unit Energy Production, kwh/year Emission Reduction, tco2 per year 200 29 5.80 4.93 0.61 43186.80 17.80 500 5 2.50 2.13 1.48 18615.00 7.38 1000 1 1.00 0.850 3.07 7446.00 3. 07 Total 35 9.30 7.91 69247.80 28.25 The deployment of the majority of the systems have been requested and facilitated by academic institutions, local government units, and private individuals, serving as the intermediaries or agents. During the course of project implementation, REAP has been continuously exploring possible partnerships for funding system procurement and project involvement as local intermediaries. Preliminary negotiations with several institutions and organizations indicate a high level of interest with respect to the technology (Table 4.3). However, securing actual participation and commitment with respect to the implementation of the Project requires further ground work in terms of ensuring flexibility and assistance in delivery mechanisms due to several factors such as site accessibility, community eligibility, resource availability, and techno economic feasibility. 2 Estimated CO 2 emission reduction has not been verified per the Gold Standard. The projected value of emission reduction has been utilized to provide a quantification of expected project outcomes as estimated in project planning with that of actual project performance. Final Report V1.0 PAGE 5

Table 4.2: Deployed picohydropower systems categorized by the area installed Area Installed Beneficiary Intermediary Capacity System Type Labo, Camarines Norte 1 Labo, Camarines Norte Dr. Guillermo R. Balce San Vicente, Camarines Norte 1 San Vicente, Camarines Norte Dr. Guillermo R. Balce Puerto Princesa, Palawan 1 Iwahig Penal Colony IIEE Arayat, Pampanga 1 Arayat National Park DHVCAT 1 Barangay Salagunting, Calanasan, Apayao Calanasan, Apayao Kalinga State College 500W Palaui Island, Cagayan 1 Barangay Palaui, Cagayan Free Trade Alliance Iligan Misamis Oriental 1 Barangay Kalilangan, Iligan Misamis Oriental 1000W Batac, Ilocos Norte 1 San Esteban, Ilocos Sur DMMSU Benguet Province 1 Benguet Electric Cooperative Asipulo, Ifugao 1 Barangay Duli, Asipulo, Ifugao Ifugao LGU 1 Asipulo, Ifugao Barangay Kamandag, Asipulo, Ifugao Ifugao LGU Asipulo, Ifugao 1 Asipulo, Ifugao 1 Hungduan, Ifugao Hungduan, Ifugao Tinoc, Ifugao Tinoc, Ifugao Lamut, Ifugao 1 Barangay Nadkak, Asipulo, Ifugao Barangay Liwon, Asipulo, Ifugao Barangay Bokiawan, Hundungan, Ifugao Barangay, Magguk, Hungdungan, Ifugao Barangay Luhong, Tinoc, Ifugao Barangay Danggo, Tinoc, Ifugao Barangay Sanafe, Lamut, Ifugao Ifugao LGU Ifugao LGU Ifugao LGU Ifugao LGU Ifugao LGU Ifugao LGU Ifugao LGU 500W Lamut, Ifugao Mayoyao, Ifugao Barangay Hamit, Lamut, Ifugao Barangay Magulon, Mayoyao, Ifugao Ifugao LGU Ifugao LGU Banaue, Ifugao Ifugao LGU Ifugao LGU 500W Banaue, Ifugao 1 Banaue, Ifug ao Dr. John Wesley Dulawan Banaue, Ifugao Banaue, Ifugao Dr. John Wes ley Dulawan Lagawe, Ifugao Ifuga o LGU Ifugao LGU Kabugao, Apayao 1 Barangay Dibagat, Kabuyao, Apayao Engr. Lee Rito Rigos 500W Cama rines Sur Center for Community Development Balanga, Bataan Batangas City, Batangas Bataan State University Batangas State University Dolores, Quezon 2 Polytechnic University of the Philippines Bubunawan, Misamis 2 Calamba, Laguna Nagtipunan, Quirino Sultan Kudarat/Maguindanao Mindanao Energy Perpetual Help University Mr. Ariel Nagyupan Davao Deltan Engr. Carlito Salazar Mr. Ariel Nagyupan IIEE Sultan Kudarat/Maguindanao Sultan Kudarat/Maguindanao Davao Deltan Davao Deltan Davao Deltan Davao Deltan 500W Notes: 1 2 Demonstration unit installed for utilization by beneficiary with no tariffs collected by local intermediary. Primarily for picohydropower technology promotion. Demonstration unit used by academic institution beneficiaries for research and educational purposes. Final Report V1.0 PAGE 6

Table 4. 3: Organizations and institutions exploring possibilities of provid ing technical and financial support to the Picohydropower Project and the status of involvement Potential Partner Organization Status Institute of Integrated Electrical Engineers (IIEE) Initial discussions conducted with agreemen ts reached for deployment of demonstration systems. Full participation and partnership as local intermediary present ly being negotiated. Philippine Society of Mechanical Engineers (PSME) Discussions with PSME (North Luzon Chapte r) currently in the preliminary stages. No agreements have been reached. REAP plans to involve PSME (National Office) to act as a local intermediary and/or p roject partner for potential sites located in the so uthern areas of the Philippines. Sibol ng Agham at Teknolohiya (SIBAT) Initial discussions conducted for participation in the Pr oject as a local interm ediary. However, SIBAT signified that the organi zation may be more inclined towards providing assistance in capability buildi ng and community organizing than being a local intermediary. In addition, REAP has been looking at the possibility in engaging SIBAT to be part of the project monitoring and verification team to check on picohydropower installation sites. Mr. Rodolfo Dulnuan, Ifugao Province A greements have been reached for full participation and part nership as local intermediary. REAP alon g with Mr. Dulnuan ha ve deployed several picohydropower systems for demonstration and direct usage by the community. Apa yao Provincial LGU Agreements have been reached for full participation and partnership as local intermediary. REAP along with the Provincial Engineering Office have deployed several pico hydropower s ystems for demonstration and direct usage by the community. Development Bank of the Philippines (DBP) Discussions with the DBP currently on the preliminary stages. No agreements have been reached. DBP has two (2) possible tracks for involvement in the Project: (1) Local intermediary for comm unities assisted by the Corporate Social Respons ibility (CSR) Program of DBP. (2) Provision of funding support in the pro curement of capital equipment necessary for the implementation of the P roject. Mariano Marcos State University (MMSU) Initial discussions conducted with agreements reached for deployment of demonstration systems. Full participation and partnership as local intermediary presently being negotiated. Final Report V1.0 PAGE 7

United Church of Christ in the Philippines (UCCP) Municipality of Adams, Ilocos Norte Benguet Electric Cooperative (BENECO) Don Honorio Ventura College of Arts and Trade (DHVCAT) Kalinga State University (KSU) Kabang Kalikasan ng Pilipinas (WWF Philippines) Agreements have been reached for full participation and partnership as local intermediary for UCCP supported communities. Currently, REAP and representatives from UCCP have conducted several site inspections in Nueva Ecija and Quezon Province to identify eligible sites based on the PDD criteria. Unfortunately, the initial site selected by UCCP did not qualify for inclusion in the Project due to partial grid electrification. Initial discussions conducted with agreements reached for site inspection for hydro resource availability. Full participation and partnership as beneficiary presently being negotiated with Chevron Philippines as the local intermediary. Initial discussions conducted with agreements reached for deployment of demonstration systems. Status to be determined. Initial discussions conducted with agreements reached for deployment of demonstration systems. Status to be determined. Initial discussions conducted with agreements reached for deployment of demonstration systems. Status to be determined. Discussions with WWF Philippines currently in the preliminary stages. No agreements have been reached. b. Site Survey and Evaluation of Potential Communities In line with the development objectives and tasks of the Project, REAP conducted and continues to conduct field inspections and surveys beyond the initial implementation phase to assist local intermediaries in evaluating the availability and potential capacity of the water resource to support the operation of a picohydropower system, establishing the energy profile of the community, and screening the potential site for eligibility based on the criteria prescribed in the PDD. The practice currently employed by REAP utilizes stakeholder dialogues and consultation with the community end users and the local intermediary as a method to obtain technical and socio of the Project. The method provides a economic information relevant to the implementation mechanism for REAP along with the local intermediary in conducting preliminary social preparation in order to inform, mobilize, and motivate the community stakeholders into accepting and participating in the Project. Due to the remoteness of some community beneficiaries, REAP relied intensively on the capacity of the local intermediary or partner within the target area to collect both primary and secondary data related to the implementation of the Project. Secondary data and pertinent literature shall be Final Report V1.0 PAGE 8

utilized in order to minimize the effects of sparse data sources and to further expand the perspective of the Project in terms of qualitative evaluation. c. System Monitoring REAP has initiated preliminary monitoring of deployed picohydropower systems beginning May 2011 as a precursor to the verification process of GS a nd to establish a baseline with which to benchmark the REAP database with regard to the condition of all deployed systems. REAP rationalized and restructured the monitoring plan based on the data requirements prescribed by the PDD. Sample monitoring forms and templates have been attached as part of the Project Implementation Guide as Annex 2. In addi tion, REAP has started developing an online database system to further provide an efficient mechanism to collect data from all target sites and provide stakeholders and partners with a ready means for checking on the level of implementatio n of the Project. REAP has projected the online database system to be completed by the end of 2011. d. Community Participation Strong community participation and organization has been an essential element of project preparation and implementation to ensure technical and economic sustainability of the picohydropower system installed in the community. Achieving the level of participation envisioned by the REAP management team has been a major challenge, as most communities were situated in remote rural areas and highly marginalized with low proficiency for project management and limite d temporal and economic resources to support non livelihood generating activities. REAP supervised both the management team and the local intermediary staff in the performance of community preparation activities, including the introduction of the technology and the objectives of the Picohydropower Project, preliminary implementation planning, establishing the counterpart contribution of the community, fund management and end user payments, and the potential livelihood development activities to support the operation of the picohydropower system. e. Discussion and Coordination Activities with Key Organizations, Donors, and Other Institutions REAP initiated and continues to initiate discussions, stakeholder dialogues, and coordination activities with key organizations and institutions. REAP started discussions with GS to amend provisions within the PDD due to the evident technical difficulties observed during site inspections for resource availability and preliminary community preparations that rendered several potential sites infeasible for picohydropower system deployment on the basis of increased distribution line losses encountered in directly connecting households to the system over long distances. One target community in the Municipality of Adams Final Report V1.0 PAGE 9

in Ilocos Norte faces such a situation, with the household cluster located at least 30m to 50m from the nearest available hydro resource. Another community located in Pangasinan, recommended by a local partner, faces the same condition with the resource located approximately 80m from the household cluster initially targeted by the project within the community. GS recognizes the need to amend the PDD in order to enhance the flexibility of implementation and recommended REAP and NMZ to modify the existing PDD. REAP has set the groundwork for discussions in involving donors such as the Development Bank of the Philippines, Chevron Philippines, and the UNDP Small Grants Program to provide the much needed funding for the second phase of implementation or supporting the deployments of picohydropower systems for several selected communities. The project management team hopes to finalize agreements during the last quarter of 2011. Outcome 2: Capacity Building Capacity building and training through the organization and/or participation in various informational events such as lectures, seminars, and workshops focusing on the following topics of interest: Picohydropower Technology: Installation, Operation, and Maintenance Efficient Energy Utilization and Income Opportunities Watershed Sustainability and Environment Conservation REAP implemented a significant amount of information, education, and communications (IEC) activities to support the implementation of the Project and in order to highlight the impact of utilizing RE technologies to provide access to remote rural and marginalized communities in socioeconomic development. The REAP IEC activities included the following: a. Preparation of information materials b. Organization and participation in informational events (Lectures, Seminars, and Workshops, Discussion Groups) c. Development of the REAP website (www.reaphil.com) which hosts the Picohydropower Project information database The IEC activities supported the other components of the Project by raising the awareness of end to the availability of RE technology solutions to facilitate access of remote rural and users marginalized communities to energy infrastructure and services and by strengthening the delivery and sharing of information to project beneficiaries and project partners. Final Report V1.0 PAGE 10

In addition, the participation of REAP in local technical exhibitions promoted the expanded utilization of community based RE technologies to regional and national audiences and provided opportunities on attracting more contributing partners to the Project. The majority of presentations conducted by REAP staff during lectures, seminars, and business towith rechargeable portable LED lamps, business workshops focused on the utilization of the picohydropower technology, the concept of utilizing picohydropower based charging stations in tandem and the application of energy efficient lighting applications in connected households. 5. Challenges Encountered and Responses The Picohydropower Project in the Philippines encountered multiple challenges, both anticipated and un anticipated, during the course of implementation, including a number of chronic problems with the peac e and order situation, extremely low incomes prevalent in the region, 3 infrastructure problems, and the unpredictable weather conditions during the onset of the rainy season causing floods and landslides which hamper the delivery of the picohydropower systems to target areas. a. Security and Political Situation Give n that the Project has been conceptualized to provide assistance to remote rural and marginalized communities, REAP expected challenges related to political rivalries, clan and inter clan conflicts, and military action against local insurgents. The political situation in some target areas has been especially volatile. In several cases, approved plans and agreements negotiated by REAP with the precedent Local Government Unit (LGU) administration were abandoned by newly elected or appointed LGU officials, particularly programs or projects initiated by political rivals as a form of retaliation or cynical reform, to the detriment and delay of the Picohydropower Project. With the elections held last May 2010, REAP faced numerous delays and deferment in several areas due to government policy of temporarily suspending any on going infrastructure project initiated by the LGU from the start of the provincial and municipal campaign period to the final counting of ballots (March 2010 to June 2010). 3 Due to the global economic downtrend and severe climate-related calamities occurring in many of the selected target areas of the project (Apayao, Kalinga, and Quezon), the estimated incidence of poverty within these target areas have been perceived to have increased and in many cases affected the availability and stability of financial resources of rural households since the start of project implementation. According to a joint report released by the World Bank and the International Monetary Fund in April 2010, an estimated 1.4 million more Filipinos joined the ranks of the poor in 2010, increasing the poverty rate by 1.5 percentage points and affecting the prospects of long-term development goals well beyond 2015. Further, the recent release of 2009 poverty incidence statistics by the National Statistics Coordination Board shows that even with the high economic growth posted in 2009, the incidence of poverty in the country increased very slightly from 26.4 percent in 2006 to approximately 26.5 percent with a corresponding 5.18 percent increase in terms of the magnitude of poor families experiencing poverty, a change from 3.67 million in 2006 to 3.86 million in 2009. The instability and seasonal variability of financial resources for rural households has a tendency towards triggering a move up or move down the level of consumption, a switch to various energy technologies based on cost, and the willingness of the end-users to pay for such energy services or technologies, making it difficult to set an appropriate tariff scheme. Final Report V1.0 PAGE 11

Since there could not be anything that the REAP management team could do to stop conflicts and security challenges within the target areas, the management team closely monitored the risks and advised the staff and the local intermediary accordingly to defer any site inspection or verification until the military or the LGU has cleared access to the area. As a means to minimize the effects of challenges to local political culture, REAP has continuously fostered a close partnership with provincial and municipal LGU officials in target areas, significantly during any changes in leadership. b. Coordination Among Community Stakeholders and Local Intermediaries One key challenge facing REAP has been the efficient coordination among the different stakeholders to push the Project forward in a timely manner, particularly and significantly, mechanisms for the communication and coordination with local intermediaries. Due to a shortage of manpower and concern of local intermediaries and stakeholders over the volatile political situations during period from 2009 to 2010, REAP has been depending intensively on the local intermediaries to accomplish data collection, final negotiations with community end users, field surveys, installation of systems, and status reporting. Compounding the manpower shortage, difficulty in access and the physical hazards in travelling to remote communities in islands and uplands have delayed the monitoring and feed back from local intermediaries. Delays were more significantly observed during the onset of the rainy season mainly due to inaccessibility to sites caused by extremely poor road conditions and intermittent operation of local communication facilities. As a measure to minimize the effects of manpower and communication issues, REAP proposed and requested NMZ to consider advancing the engagement of Project Manager, ahead of the scheduled second year implementation timeline. With the favorable approval of NMZ, the selected Project Manager was appointed on December 2010. During the six month duration from the appointment of the Project Manager to the scheduled culmination of the initial project implementation on June 2011, REAP evaluated the status of project implementation and discussed some remedies to the issues and challenges facing the Project. In addition, REAP has intensified coordination efforts with local stakeholders by fleshing out a structured m onitoring plan and enhanced the management process and tracking picohydropower deployments in preparation for the second phase of implementation. In addition, the Project Manager initiated a complete assessment and revision of operational procedures utilized by REAP and established a standardized procedure for processing the engagement of local intermediaries, partners, and community end users from the creation of legal instruments at the start of engagement outlining all agreements, deliverables, and documentation, to the orientation of potential intermediaries and partners with respect to the required monitoring information, and the establishment Final Report V1.0 PAGE 12

of an efficient mechanism for reporting and data archiving which will ensure the efficient implementation and adherence to parameters prescribed by the PDD for verification and validation under the Gold Standard. The Project Manager continued with the identification of potential communities for inclusion into the Project and established linkages with donors and key organizations to enhance the efficiency of the project implementation. Being the focal person in dealing with LGU officials and other political figures, association with government agencies and institutions waned during the absence of the REAP President from the first to third quarter of 2011. Instead, the REAP management team prioritized the strengthening of operational and management processes of the organization while improving relationships with existing partners and local intermediaries. c. Climate Change Effects The effects of climate change have affected the hydro resource assessment being conducted before the actual deployment of systems due to unprecedented water level and volume fluctuations which lead to changes in the technical design of the picohydropower systems, significantly the generation capacity. REAP had to request local intermediaries and partner organizations to reevaluate resource availability and capacity estimates due to the considerable deviations from primary data and verification using historical data from literature. In addition, many of the existing systems were relocated further upstream or to another location with a higher availability of hydro resources which subsequently caused increased transmission and distribution line losses due to the distance of the system from the end user. The inadequate hydro resources deferred several deployments and induced local intermediaries and partner organizations to search for other suitable communities with enough resources to support picohydropower systems. d. Reduced Support from the National Government for Off Grid Project Development and Policy Barriers Arising from the Promulgation of the Renewable Energy Law The passage of the Renewable Energy Law provided the needed impetus towards increasing the utilization of RE technologies and resources with coincident investments in project development and implementation. However, an analysis of the provisions contained within the Law reveal the preference of the government, particularly the Department of Energy, for large scale RE projects that could provide the required generation capacities to meet the ever increasing energy demand in the country. The marked preference for large scale systems has effectively reduced the support of the national government to community based and off grid RE projects. Final Report V1.0 PAGE 13

Specifically, the provisions affecting community based and off grid RE projects involve the registration and permitting of all local RE generation projects whether self generating, community based, or large scale and the awarding of service contracts to large scale developers giving them exclusive exploration and resource utilization rights. The former provision impedes project implementation due to bureaucratic processes and the latter blocks the entry of small scale and community level project developers due to the exclusivity clause and hinders the entry of these developers to remote and rural areas due to the long approval process of waivers and permits. REAP has linked up with partners and cooperators undertaking community based RE project development and implementation in order to strengthen the lobby and representation for small scale community based and off grid project development to minimize any barriers. e. Technical and Site Development Constraints During the course of project implementation, REAP observed in several instances the distant location of the available water resource from the center of a target household cluster and the dispersal of household within a target area. Based on experiences of REAP in picohydropower system deployments during the initial stages of project implementation and in consideration of the PDD prescription of connecting all picohydropower systems to a household or a cluster of households, the increased distances in connecting the system from household to household result to distribution line loses which dissipates much of the generated electric power from the picohydropower turbine generator and renders a potential site technically infeasible for system deployment. As such, REAP recommends the expansion of PDD coverage to incorporate another technical design option, the utilization of picohydropower based charging stations for rechargeable portable LED lamps or storage batteries, in order to enhance flexibility in project implementation in cases where technical and site development constraints prevent the feasibility of deploying a picohydropower system in a target site given the conditions outlined above. Using a combination of the house connection and the battery charging station design options or single deployments of these design options may further increase the number of households served by the picohydropower system as well as the number of connected households. Charging of lamps and/or storage batteries may be done during off peak hours when connected household do not directly utilize the system. Discussions with the Regional GS Representative regarding the possibility of amending the PDD resulted in a positive outcome with the recommendation that REAP and NMZ revise the PDD to reflect the additional technical design for approval. The modified PDD has been attached as Annex 3. Final Report V1.0 PAGE 14

f. Preference of Community End Users for Grid Electrification Given a choice between utilizing grid electrification and RE based technologies as delivery mechanisms for electric power access, most rural communities prefer grid electrification services due to the capability of the service to provide a greater quantity of electric power to support higher loads for household, productive, and community livelihood applications, plus the convenience that the service provides in relieving community end users from the time and effort needed to operate and manage a village power system. In terms of the choice for RE based technologies, LGUs and most communities have a preference for solar power technologies (solar home systems and solar battery charging systems) due to a higher level of awareness for the technology and perceived technical maturity compared picohydropower systems. 6. Moving Forward Given the numerous challenges faced during the initial phase of implementation, REAP proposes the following mechanisms to ensure the effective implementation of the Project and ultimately, the efficient delivery of energy services to identified target communities: Management Framework and PDD Amendment Refers to the programmatic structure, including related tasks and activities, as reflected in the Project Design Document (PDD) and amendments thereof. With the partial resolution of the manpower constraints encountered during the course of project implementation through the engagement of a project manager, REAP anticipates a more efficient level of supervision and guidance in terms of operationalization, monitoring, and documentation of project implementation. The project manager has been able to map and establish a standardized procedure for processing the engagement of local partners or agents and community end users from the creation of legal instruments at the start of engagement outlining all agreements and deliverables, to the orientation of potential partners or agents with respect to the required monitoring information, and the establishment of an efficient mechanism for reporting and data archiving which will ensure the efficient implementation and adherence to parameters prescribed by the PDD for verification and validation under the Gold Standard. In addition, REAP has proposed to expand the original concept of connecting households to picohydropower systems with the inclusion of charging stations to charge batteries and portable LED lamps and flashlights to replace kerosene lamps, in order to maximize the productivity of the picohydropower systems, thus increasing the number of households served by each picohydropower system. The additional charging station concept shall be piloted on a limited scale as the design of a suitable charging station with overcharge protection and automatic transfer switch has yet to be evaluated on the applicability, commercial availability, simplicity/ease of operation and costs. Final Report V1.0 PAGE 15

REAP has amended sections of the PDD to reflect the inclusion of the charging stations and has been currently drafting the Project Design Change Memo and other supporting documentation to support the proposed amendments. Performance Targets/Metrics and Periodic Project Implementation Assessment Qualitative, quantitative, and other time bound targets to provide a clear basis or criteria with respect to the indicative performance and standards for the potential range of results defined within the PDD. With the re establishment of institutional linkages with existing local partners or agents currently being undertaken, REAP shall be initiating a participative project evaluation and planning workshop targeting local partners and stakeholders to formulate a better structured project implementation plan as well as overall and periodic project performance targets/metrics/indicators, designed to increase the appreciation, firmer understanding, and accountability of all partners and stakeholders for the succeeding phases of the project. Reporting and Data Capture Mechanisms for efficient, regular, and cost effective reporting on activity updates and performance to project stakeholders must be put into place in order to foster accountability, transparency, and ensure timely corrective action on any issue or problem that may arise during the course of project implementation. REAP has been currently enhancing the efficiency of data collection and archiving by strengthening and further focusing on coordination with local partners and agents in terms of establishing a cost effective means towards regularly communicating with local partners or agents. Samples of standard monitoring and other required forms have been contained in the Project Implementation Guide shall be provided to local partners or agents and to end users in order to provide guidelines as to the data required by the project. Periodicity and manner (Post, Electronic Mail, SMS, or by other mechanisms) in reporting and submittal of monitoring and feedback forms shall be negotiated with each local partner or agent on a case to case basis in order to provide temporal and method flexibility for the agent or partner in collecting the data from the target communities, with a caveat that all as submittals shall provide the complete data requirements and in the periodicity prescribed by the PDD. Data Archiving and Dissemination/Promotion Generated data and analysis must be archived using storage mechanisms which provide easy accessibility to all categories of users and project stakeholders. REAP is currently establishing a stronger presence on the world wide web and developing an online database in order to provide stakeholders with a ready access to data and documentation archives. Final Report V1.0 PAGE 16

Aside from the online database, REAP has been currently stepping up promotion and marketing activities to increase public awareness on the project by participating in more trade exhibits, fora, and other energy sector activities and through the creation of IEC materials. Fund Sourcing and Partnerships REAP has commenced preliminary discussions with financial and donor organizations such as the Development Bank of the Philippines and the UNDP Small Grants Program towards proving financial support for the implementation of the succeeding phases of the project. Final Report V1.0 PAGE 17