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2. Where does integrated energy development work best?

1. Existence of energy resources
2. Relative isolation
3. Human resources and community organization
4. Institutional structure
5. Potential for economically productive activities
6. Locating regional integrated energy development opportunity

Experience has provided a checklist of characteristics describing an area where the regional integrated energy approach works best. While the list is by no means all-inclusive and the order of priority will vary widely between projects, it offers a broad overview of the conditions that facilitate integrated energy development activities:

· existence of energy resources
· relative isolation
· human resources and community organization
· institutional structure
· potential for economically productive activities

1. Existence of energy resources

The existence of energy resources, currently or potentially utilized, is the first need for any integrated energy project. The focus remains on the demand side of the equation, but some supply of these resources must exist to meet the present and generated demand.

As described previously, energy resources can be conventional or non-conventional. In many isolated rural areas, difficult and costly access for traditional fuels means that renewable resources can be more economical. In some instances, local resources exist but are underutilized. Recognizing the existence of indigenous resources and looking for unique applications of these supplies can spark integrated energy development in areas previously considered resource-scarce.

Overall, many regions of Latin America are blessed with abundance of energy resources. In contrast to many areas of the world, some hydrocarbons reserves are found in the majority of countries in South America; hydropower potential exists in all of Latin America; and, with several critical exceptions, forest resources are plentiful. As a result, in many regions of Latin America, resources that potentially can be integrated with productive activities exist.

In the small states of the Caribbean, the situation is somewhat different. The extreme importance of biomass energy, which is unlikely to change in the near future, means that the issue is not tapping unutilized resources, but rather carefully managing the resources that are locally available and cost-effective to use. As described further in Chapter 5, natural resource management becomes the central concern.

2. Relative isolation

Regional integrated energy development projects work best in relatively isolated areas. This relative isolation cannot be precisely defined, although such regions are usually not connected with the electricity grid. In areas that have been integrated with the national grid, remaining problems probably stem from a lack of overall economic development. A lack of energy is not the factor restraining development in such areas; therefore, the regional integrated energy development method is unlikely to be the most suitable approach. However, in some areas, such as the shrimp farms of Ecuador described below, connection with the national grid can solve existing energy supply problems, as well as catalyze additional development opportunities.

On the other hand, some areas are so inaccessible that generating economically viable activities does not appear feasible. No hard rules can measure relative isolation: Yacuambi, Ecuador, as described on page 10, has no road access, yet it appears to have a high potential for integrated energy development projects.

Geographical isolation, usually accompanied by poor transportation routes, results in difficult and costly access for traditional fuels, such as petroleum products and natural gas. For these same reasons, these areas face problems in integrating with the grid. Infrequent and high-cost fuel deliveries to areas distant from the source of supply (oil or gas fields, refineries or ports), along poor transportation lines, seriously hamper new economic activities. Yet in these areas, where no short or medium term plans exist for connection with the grid, conditions may be favorable for integrated energy development projects.

In Ecuador, the difficulty in supplying conventional fuels to coastal shrimp farms provided an opportunity for integrated energy development activities. The farms, located in mangrove swamps, were not connected to the country's electricity grid. Instead, they relied on diesel fuel, which had to be transported by water. Costs were extremely high and deliveries were infrequent. An analysis of various alternative sources of energy demonstrated that connection to the electricity grid would be the most viable option, due to geography and the national oversupply of hydroelectric generation capacity.

While connection to the grid alone would solve many of the reliability problems caused by diesel, the integrated focus of the project looked for additional opportunities that could be catalyzed by a new energy supply. The new electricity supply could permit shrimp farmers to increase the productivity of their ponds through the introduction of new technologies. In addition, the grid extension would provide electricity to many small settlements along its path that could not justify it by themselves. Although grid extension to isolated areas is never a low-cost option, the expected new electricity demand, the profitability of shrimp farming and the importance of shrimp to the national economy (they are Ecuador's third-largest export) made the project economically and financially viable.

In the Human Settlements Energy Project countries of the Eastern Caribbean, the access of commercial fuels is limited by the unique features of small islands. Not unlike isolated rural regions within Latin American countries, whole islands have a small energy demand, making the provision of petroleum-based fuels extremely costly for the entire nation.

While it is not necessary for a region to have an extensively developed infrastructure in place, most of the economic activities in integrated energy projects include the production of goods for outside markets, requiring access to these potential markets. This access can take the form of roads, railroads, rivers or even airports, but some form of integration with other areas is necessary. In Yacuambi, Ecuador, designing projects to overcome the extremely difficult access was one of the main factors in the program. The project identified cheese as a product with low perishability which could overcome Yacuambi's difficult access.

3. Human resources and community organization

The integrated energy development approach attempts to involve local populations in the planning of programs. Without the input and cooperation of the people that the project is designed to benefit, even technically sound ideas can fail. The presence of people organized together, interested in and capable of assuming part of the responsibility for the development process, greatly facilitates the implementation of the projects.

The existence of this "sense of community", varying from well-organized cooperatives to churches, schools and social clubs, provides the project team with a group of interested people willing to discuss the problems and aspirations of the community. Regardless of the type of organization, a sense of belonging and the precedent for joint, mutually beneficial actions make integrated planning much more likely to result in concrete actions.

Many OAS projects have drawn heavily on existing local groups when establishing the institutional structure of projects, as demonstrated in Case Highlight 3 below from the proposed Pedernales, Dominican Republic fuelwood plantation and electric generation project.

4. Institutional structure

In addition to the need for community participation in projects, an organization capable of implementing and managing projects must be strengthened or created. It is often very difficult to find local people with the necessary skills to manage and operate industrial projects such as the meat and juice processing plants in Monteagudo, Bolivia, or the cheese production plant in Yacuambi, Ecuador.

As it is unlikely that an existing institution will be able to perform such tasks at the start, most programs look to regional or national development organizations for this level of expertise. The private sector can also play an important role, as is currently being investigated for the Monteagudo agroindustrial project.

The example (Case Highlight 3) from the Pedernales wood-fired plant in the Dominican Republic demonstrates the incorporation of regional and national institutions, along with the local population, into the project planning process.

5. Potential for economically productive activities

During the region selection phase, the project team searches for activities, either ongoing or feasible, that have potential to be economically viable. The team looks for current activities that could become more profitable given a reliable source of energy (such as the Ecuador shrimp project), or activities that could be undertaken with the addition of energy and other development inputs (such as the Monteagudo agroindustrial plants).

Case Highlight 3

Community Involvement in Integrated Energy Development: Pedernales, Dominican Republic

The frontier zone of the Dominican Republic, along the border with Haiti, is one of the least developed areas in the country. Although the electric grid reaches the zone, it lies at the westernmost extension of the system and the quality of service is very poor. Frequent voltage fluctuations serve to deter industrial activity.

Pedernales, the only provincial capital in the country not connected to the national grid, receives electricity from a 1.5 MW diesel plant. However, the plant operates infrequently because of maintenance problems; high diesel prices mean that production costs are well above the national average. These conditions are the major reasons why there is no significant industrial activity in the area.

A proposed 3 MW dendrothermal (wood-fired) plant in Pedernales, connected to the national grid, would help resolve several major problems in Pedernales and in the entire zone. First, it would help reduce voltage fluctuations in the system, enhancing the region's ability to attract economic activity. Second, it would meet the electricity demands of the people of Pedernales in a more reliable and less costly manner. Third, excess energy supplied by the plant could induce agricultural and industrial activity in Pedernales and the surrounding areas. Finally, the plant and the fuel-wood plantation would directly generate jobs for residents; additional employment in the future would result from new agricultural and industrial development.

The project design of the Pedernales wood-fired power plant and accompanying fuelwood plantation demonstrates a high degree of involvement of local residents in the planning and implementation of the project. The program successfully incorporated both the traditional agricultural activities of the peasants and their existing community organizations, while at the same time utilizing the technical capabilities of regional and national organizations.

A sociologist assigned to the project met with the local people and town councils to identify the priorities of the residents of Pedernales, and those of the people living in Las Mercedes, located within the forest area proposed for the fuelwood plantation.

An estimated 150 families lived in the area proposed for the fuelwood plantation, practicing traditional slash-and-burn agriculture. While the residents of the area were interested in participating in the project, they did not want to lose their traditional agricultural lifestyle and life support system. To minimize the disruption, the project design provided for the planting of traditional crops in coordination with the trees for the plantation.

The sociologist also discovered that many residents of the area had worked for a mining company (which had since ceased operations), and were dissatisfied with the company's contribution to their development. They had understood that the company would assist in building schools and roads and in providing potable water supplies. In reality, very little assistance was actually provided.

The design of the institutional structure for the plantation and power plant sought to maximize the participation of the residents, while making significant contributions to improving their social and economic well-being.

Base Groups, comprising 10-15 residents each, would make up a Wood Producers Association, producing and supplying wood to the power plant. Each Base Group would establish collective estates, averaging 100 hectares. Wood produced by the Base Groups would be sold to the Wood Production Company to supply the power plant. In turn, the company would provide the farmers in the Wood Producers Association with technical assistance and training.

The Wood Production Company would be a subsidiary of the Dominican Electric Company (CDE) and would be administered by a Board of Advisors, composed of representatives from the CDE, the Patronato Comunal, the Wood Producers Association and individual wood producers.

The Board would determine the amount of a tax to be paid by the Wood Company on wood sold to the plant. This tax would form a fund to promote socioeconomic development in the region.

Unfortunately, such activities cannot be identified in all areas of Latin America. Some regions do not have adequate natural resources to support productive activities and others, while blessed with natural resources, have not yet reached a basic level of economic development at which the provision of energy will have a significant impact. In these areas, small-scale energy projects can make improvements in the quality of life for the local residents, but may not result in integrated investment projects.

Circumstances exist where the social needs for an energy project are so great that concerns about economic viability are put aside. These projects, designed to meet critical social objectives, call for a distinct set of guidelines and should be distinguished from the start from integrated energy programs seeking economically viable projects.

6. Locating regional integrated energy development opportunity

These five characteristics can be thought of as a set of criteria for regional integrated energy development. If a region does not meet the conditions specified, because its level of development is either significantly greater or lower than the parameters described here, other development approaches are likely to be more beneficial.

For example, if a region is not isolated from the rest of the country and access for conventional fuels is not a problem (point 2), integrated energy and development is unlikely to be effective. Such an area is likely to be integrated with the national grid or readily provided with conventional energy supplies, in which case other forms of economic development activities are necessary. If such an area lacks energy, an infrastructural, supply-oriented solution is probably necessary.

Similarly, if a region falls below a minimal level in most or all of these seven categories, an integrated approach to energy and development is not likely to bring about the synergism described here. In a region completely isolated from the rest of the country, with a lack of viable energy resources and little community organization, it is not likely that opportunities for integrating energy with economically viable projects will be found. As these regions are often the most needy areas of the country, other alternatives must be explored.

Case Highlight 4

Locating Regional Integrated Energy Development Opportunity: Yacuambi, Ecuador

Yacuambi, in the northern part of Zamora Province, Ecuador, is one of the few populated mountainous areas not connected to the country's extensive electricity grid. The town is extremely isolated, lying some 60 kilometers from the provincial capital, Zamora. A road from Zamora and Yacuambi ends 12 km from Yacuambi. A footpath allows pedestrian and animal travel during the dry season, although during parts of the rainy season access to the town is difficult.

Electricity is provided to the residents of the town with a mixed hydro and diesel system. The hydro system, built with outside assistance in the 1950s, has a 12 KW mini-hydro generator. Today, the hydro system is supplemented by a 65 KW diesel generator housed in the same plant. Under normal circumstances, the hydro generator operates between 11: 30 p.m. and 8 a.m., while the diesel system generates electricity in the peak demand period between 6 and 11: 30 p.m. During most of the daylight hours, from 8 a.m. to 6 p.m., no electricity is available.

To compensate for Yacuambi's isolation while taking advantage of its abundant natural and human resources, the program looked for productive activities that would meet the following criteria: 1) products made of local resources; 2) products stable enough for transport to markets in the larger towns of the region using the existing mule/horse-path transport system; and 3) products with a high value-added.

Cheese production was seen as an activity that would meet all three criteria. Quality cheese demand was unsatisfied in the closest provincial capitals. Cattle-raising was a familiar activity for the residents of the area. Cheese could be transported to other towns in the province without spoiling and had a high value-added. Cheese production would require a larger, more reliable source of energy. In addition, a new source of electricity could provide uninterrupted and lower-cost electricity for the town. The project team identified the possibility of building a new, minihydro system, taking advantage of unused local hydro potentials.

An economic analysis compared this option with extension of the regional grid to Yacuambi from Loja, and with the construction of a new diesel system. Considering the highly subsidized government price for diesel, the regional grid extension based on current central diesel generation appeared most economical in the first year of operation. However, over the project life cycle, the minihydro system proved least-cost. Furthermore, using international prices for diesel, the hydro option was the most economic from year one.

Further analyses showed the strong potential for replicability of small-scale cheese production throughout the southern mountainous areas of Ecuador.

As seen, Yacuambi does meet the criteria for regional integrated energy development.

Existence of energy resources Yacuambi is situated at the confluence of three rivers. Although the existing hydroelectric system was technically sound, a physical and topographical examination of the surrounding region revealed that it harnessed only a portion of the vertical fall available in the area.

Relative isolation Yacuambi clearly is isolated from the rest of the country. While its overall level of development is remarkably advanced given this isolation, additional economic development seemed to depend on integration with the markets of larger towns in the region. The road stops 12 km from Yacuambi and fuels for the town's diesel generator had to be carried by mule over the footpaths.

Human resources and community organization The people in Yacuambi expressed interest in new economic activities for the town. An Indigenous Association was willing to participate in new activities, expressing special interest in projects that would include technical assistance for the farmers.

Institutional structure The farmers in the Indigenous Association could form the base of a Producers Association for an agroindustrial activity, and the basic technology required to operate the cheese plant could be adapted to fit the skills of the residents.

Potential for economically productive activities Yacuambi is surrounded by approximately 50 square kilometers (5000 hectares) of gently rolling hills, covered almost entirely with natural grasses. This area provides excellent pastureland, where most of the residents raise livestock.

At these lower levels of development, two options exist:

· a global regional development approach
· a social development perspective

A global regional development approach deals with all of the development problems facing such an area, including basic agriculture, education, transportation, etc. Energy, too, is often a component in this comprehensive approach, although it plays a much smaller role and expectations that it will catalyze economically productive activities are not significant.

In a social development perspective, energy projects are identified to improve the quality of life of residents in these areas of severe deprivation. Such projects, such as photovoltaic refrigeration in rural health clinics, can make an extremely valuable contribution to the welfare of the people. Again, these projects are not expected to catalyze economic development.

Pressures may exist for choosing regions that do not meet the above criteria. Governments, with natural social and political motivations, may push for the selection of the most needy, poorest region of the country to apply the regional integrated energy development methodology. In many of these areas, the minimum level of development inputs described above - natural resources, basic infrastructure, community organization, etc. - is simply not present.

Areas with conditions falling outside this set of criteria certainly merit special attention from governments and assistance organizations. Projects aimed at improving the social welfare of the residents are usually necessary. These projects, by their very nature, are not designed to achieve economic viability and are likely to require continuous financial support.

Funds allocated to natural resources and development in general are limited. Activities must be carefully selected to bring about the greatest development impact with the least amount of money. Applying the regional integrated energy approach to areas that meet the criteria described and thus have a high probability of success is an attempt to maximize the impact of the development efforts.

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