"The electricity bill is my biggest expense. As all of the machines run on electricity, my electricity bill is quite high. In some months, when I don't have enough revenue, I have to use my personal funds as well to pay the bill," shares Aminath Rasheeda, a 42-year-old mother of two who runs a tailor shop in the northern city of Kulhudhuffushi.
The Maldives has succeeded in bringing electricity to even the most isolated atolls, resulting in 100% electricity connectivity in the archipelago – but also, tragically, near-complete reliance on diesel fuel to run the generators. In 2019, the country imported more than 700,000 metric tons of fuel, with diesel accounting for 80 percent of the total. The utilities use a substantial proportion of this imported fuel to generate electricity. The country's reliance on expensive imported diesel for power generation, a lack of economies of scale, and poor infrastructure have resulted in one of the highest power tariffs in the region – as high as MVR 4.5 for domestic users and MVR 7.5 for institutions – making it challenging for entrepreneurs like Rasheeda to free up cash to expand their business.
The high fuel bill has also put extra pressure on the Maldives' already strained fiscal space. To cushion the blow on people's livelihoods from the unprecedented shocks of COVID-19, the government offered a utility bill waiver. This was on top of the US$61 million subsidy – about 1 percent of the GDP-offered on fuel and electricity. This, coupled with reduced electricity demand, falling collection rates, and the inability to increase tariffs, led to significant losses for the two state-owned utilities, STELCO and FENAKA. In addition, the COVID-19 pandemic has resulted in widening fiscal deficits and rapid build-up of debt vulnerabilities.
Moving from a fossil-based to a renewable-based energy model is the best way to make electricity cheaper for everyone and protect the pristine island paradise.
The World Bank, with the help of the Agence Française de Développement (AFD), the International Solar Alliance (ISA), and the International Renewable Energy Agency (IRENA), created the Sustainable Renewables Risk Mitigation Initiative (SRMI) in 2018 for COP24. SRMI's goal is to assist nations in establishing and executing sustainable renewable energy programs that will attract private investment while lowering dependency on public funds.
SRMI brings together development and climate finance to provide technical assistance in developing evidence-based Variable Renewable Energy (VRE) sources such as wind and solar, implementing a sustainable renewable energy program, and establishing robust procurement processes with transaction advisors to select Independent Power Producers (IPPs). Critical public investments are also secured to integrate energy sources such as wind and solar into existing power grids, finance solar or wind park infrastructure, and increase access to electricity. Measures such as investment guarantees and escrow accounts are introduced to reduce investment risks and concerns of potential investors.
"Bankability of renewable energy projects is key to mobilizing private sector investment. The 11-megawatt solar project has been structured to increase investor confidence by incorporating a three-tier SRMI framework including: Currency Convertibility Clause for PPA payments, an Escrow Account for delayed utility payments, and the option of Guarantees for defaults. These are a part of the SRMI framework and showcase that the SRMI is a great tool to engage private sector investment in renewable projects," says Amit Jain, the team leader for the World Bank's energy projects in the Maldives.