Sandwip Project

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100 kW Solar Mini Grid at Sandwip Island

The Sandwip Island, has a population of 400,000, is detached from Chittagong mainland by a channel of about 75 kilometers. Located along the south eastern coast of Bangladesh, the island is 50 kilometres long and 5.15 kilometres wide. There are 15 unions in Sandwip.Because of its position and inaccessibility there is no possibility of grid electrification service in this area in the distant future. Sandwip is an upazilla with very high literacy rate and remittance earnings from the United States and Middle Eastern countries. The island, however, has a dynamic population with various public and private service offerings providing support to the general public including educational institutions, health service centers, small and medium enterprises, etc. Despite shortage of reliable and consistent supply of electricity, use and willingness of use of various loads have been found in this region i.e. computers, printers, scanners, photocopy machine, refrigerators, color television, etc. At present, the electricity demand of general shops in the markets of Sandwip are served by diesel micro-grid run by several diesel generator operators who provide services for about 5 to 8 hours per day. Besides, several diesel generators are used by several shop owners for captive consumption. Average tariff rate being charged to the customers by the diesel operators currently range between BDT 53 per kWh and BDT 60 per kWh. Bangladesh Power Development Board also has diesel generator that supplies electricity to mainly government offices. Several non-government organizations (NGOs) have been providing off-grid electrification solution in the household levels through ‘solar home system’ units in Sandwip under a program run by state-owned financial institution.namedLighting Rural Bangladesh “LRB”. LRB was established by the Government of Bangladesh to catalyse the development of private sector infrastructure and renewable energy project. Observing the demand patterns in the commercial areas, the NGOs came up with an idea of installing a 100-kW solar based power station in an optimal location from where electricity will be dispatched through a distribution line. Construction of such a system would cost at least BDT 5 crore and the consortium of the NGOs could afford up to 20% of the project cost. The NGOs recognized that the Project would require extensive concessionary financing support and technical assistance. When shared the project idea with LRB, it expressed its interest to extend soft loan and arrange grant support for implementing the Project. As per its lending policy, LRB could extend 10 years loan with a grace period of 2 years at an interest rate of 6% per annum and only interest is required to be paid during the grace period. The construction period of the Project is expected to be only 4 months. The NGOs formed a Project Company called PGL for implementing the Project with individual shareholding. It has been decided that PGL will inject the equity first and will start the construction works. The expected financial closing of the Project has been planned on 31 December 2012 and the expected drawdown of the loan will be as shown in the following table:  | 30-Jan-13| 28-Feb-13| 28-Apr-13|

Percentage of drawdown| 20%| 40%| 40%|

LRB decided to require the loan to be repaid semi-annually following annuity method. Later, LRB approached one of its multilateral financing sources and one of them agreed in-principal to extend the required grant support. The grant amount would be up to the amount required for making the Project financially viable. However, it cannot exceed 40% of the project cost. Now, the challenge has been turned out to be identifying the customer base with stable demand pattern, identifying the project location, and designing an optimal mix of debt, equity and grant ensuring the viability of the Project and suitable return to the project...
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