Document of The World Bank FOR OFFICIAL USE ONLY Report No: 149682-LS IMPLEMENTATION COMPLETION AND RESULTS REPORT ON A SMALL GRANT IN THE AMOUNT OF USD 0.3 MILLION FROM SCALING-UP RENEWABLE ENERGY PROGRAM UNDER THE STRATEGIC CLIMATE FUND TO THE KINGDOM OF LESOTHO FOR LESOTHO SCALING UP RENEWABLE ENERGY PROGRAM INVESTMENT PLAN June 25, 2020 Energy & Extractives Global Practice Africa Region Regional Vice President: Hafez M. H. Ghanem Country Director: Marie Francoise Marie-Nelly Regional Director: Riccardo Puliti Practice Manager: Wendy E. Hughes Task Team Leader(s): Frederic Verdol ICR Main Contributor: Sarah Moin ABBREVIATIONS AND ACRONYMS AfDB African Development Bank CIF Climate Investment Funds CPF Country Partnership Framework DoE Department of Energy EDM Electricidade de Moçambique ESMAP Energy Sector Management Assistance Program GDP Gross Domestic Product GEF Global Environment Facility GHG Greenhouse Gas GoL Government of Lesotho IFC International Finance Corporation IP Investment Plan IPP Independent Power Producer JICA Japan International Cooperation Agency LHDA Lesotho Highlands Development Authority LEC Lesotho Electricity Company LEWA Lesotho Electricity and Water Authority LREEAP Lesotho Renewable Energy and Energy Access Project MDB Multilateral Development Bank MEM Ministry of Energy and Meteorology MHP Muela Hydropower Plant MW Megawatt OS Options Study PDOs Project Development Objectives PPP Purchasing power parity RE Renewable Energy REU Rural Electrification Unit SDGs Sustainable Development Goals SREP Scaling Up Renewable Energy Program in Low-income Countries UAF Universal Access Fund UNDP United Nations Development Programme WB World Bank TABLE OF CONTENTS DATA SHEET .......................................................................................................................... 1 I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 4 II. OUTCOME .................................................................................................................... 11 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 14 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 14 V. LESSONS LEARNED AND RECOMMENDATIONS .............................................................. 15 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 17 ANNEX 2. PROJECT COST BY COMPONENT ........................................................................... 20 ANNEX 3. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ...... 21 ANNEX 4. SUPPORTING DOCUMENTS (IF ANY) ..................................................................... 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name Lesotho Scaling Renewable Energy Program (SREP) P160583 Investment Plan (IP) Country Financing Instrument Lesotho Investment Project Financing Original EA Category Revised EA Category Partial Assessment (B) Organizations Borrower Implementing Agency Kingdom of Lesotho Ministry of Energy and Meteorology Project Development Objective (PDO) Original PDO The proposed development objective is to support the Government of Lesotho to prepare a renewable energy investment plan for consideration by the SREP for funding. FINANCING FINANCE_TBL Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) Donor Financing TF0A3630 300,000 288,000 Total 300,000 288,000 Total Project Cost 300,000 288,000 Page 1 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) KEY DATES Approval Effectiveness Original Closing Actual Closing 09-Oct-2016 30-Dec-2018 30-Dec-2018 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions KEY RATINGS Outcome Bank Performance M&E Quality Satisfactory Satisfactory High RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) Seq No: 1 29-Oct-2019 Satisfactory Satisfactory 0.288 ADM STAFF Role At Approval At ICR Regional Vice President: Makhtar Diop Hafez M. H. Ghanem Country Director: Guangzhe Chen Marie Francoise Marie-Nelly Director: Anna M. Bjerde Riccardo Puliti Practice Manager: Wendy E. Hughes Wendy E. Hughes Vonjy Miarintsoa Task Team Leader(s): Frederic Verdol Rakotondramanana ICR Contributing Author: Sarah Moin Page 2 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) Page 3 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES Context Country Context 1. At the time of project appraisal in 2016, the Kingdom of Lesotho is a lower-middle-income country with a largely rural population. Lesotho, a small mountainous country of 2.2 million people, is surrounded by the Republic of South Africa. Highlands constitute more than two-thirds of the country, of which less than 10 percent is suitable for cultivation. Population growth in Lesotho had slowed since the early 1990s, from 2 percent a year to slightly more than 1 percent. Most people lived in rural areas, but the share of urban population increased substantially, from 14 percent in 1990 to 27 percent in 2015. Lesotho is also highly vulnerable to climate change and regularly experiences droughts, floods, frosts, heavy snowfall, strong winds, hailstorms, and tornadoes. These adverse conditions undermine the country’s economic development and are expected to worsen as Lesotho becomes drier and hotter in the coming years. 2. Lesotho’s economic growth, once based on remittances and agriculture, was progressively driven by value- added output in services and manufacturing sectors. Some of the largest industries in Lesotho were mining, construction, food products, and textiles; and in services, wholesale and retail trade. Agriculture’s value addition to Lesotho’s economy declined from 41 percent in 1975 to 6 percent in 2015 while remittances declined from nearly 100 percent of GDP in the early 1980s to just 16 percent in 2015. However, these structural transformations have not been sufficient to enable the economy to achieve high sustainable growth rates to withstand external shocks. While the country quickly recovered from the global financial crisis in 2009, its growth has stagnated since 2011 because of slow economic growth in South Africa and increasingly volatile revenues from the Customs Union. 3. Poverty and unemployment remained critical problems in Lesotho despite the country’s steady economic growth. Though Lesotho recorded continuous economic growth of 2.5 percent per capita over the past decade, the country showed moderate progress in poverty reduction. An estimated 40 percent of the population lived below the national poverty line at project appraisal. Poverty was concentrated in populations living in rural isolated areas (72.4 percent of the population), with limited income opportunities and high cost of service delivery due to the country’s difficult terrain and scattered settlements. Consequently, Lesotho’s highland population had been migrating to lowlands, attracted by economic opportunities and better services. Lesotho suffered from double-digit unemployment rates, that were particularly severe among the youth. In 2015, the broad unemployment rate was 28 percent and 43 percent among the youth (ages 15 to 24), reflecting no significant improvement since the beginning of the century (overall and youth unemployment rates were 27 percent and 33 percent, respectively, in 1999). This dismal situation in the labor market came at a time when the country was entering a window of demographic opportunity - a period when the ratio of the working-age population to the dependent-age population was increasing rapidly. If the current large cohorts of young Basotho were productively employed, the country could leverage this demographic opportunity to grow richer. 4. Social and economic development was constrained due to low electrification rate, reliance on imported fuels, and dwindling forest reserves. Because many households in Lesotho lack access to electricity (38 percent in 2016), especially in rural areas, they relied on traditional fuels such as biomass (wood and dung) for their energy needs. Deforestation was a serious problem - from 1990 to 2010, the country lost forest cover at the rate of 0.5 percent a Page 4 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) year, largely because of rural household demand for wood fuel. Urban households were less reliant on biomass and mainly used expensive substitutes such as paraffin and gas for heating and cooking. Paraffin (kerosene) was also the main source of fuel for lighting - 60 percent of all households used paraffin while the rest used electricity or candles. Lesotho imported all its petroleum needs and 35 percent of its annual electricity needs. The Government recognized that the low electrification rate, reliance on imported fuels, and dwindling forest reserves are fundamental challenges in the energy sector and barriers to economic development. Increasing access to electricity, particularly in rural areas, would not only result in improved living conditions of the beneficiary population but would also provide a stronger foundation for the development of income generating activities. Electricity was also viewed as a driver of broader economic development in Lesotho, with the potential to support industrialization of the economy, tremendously increasing jobs and supporting diversification in manufacturing and agriculture sectors. Sector and Institutional Context 5. In 2016, the electricity sector in Lesotho was overseen by the Ministry of Energy and Meteorology (MEM) which was responsible for overall policymaking and financial planning. The Department of Energy (DoE), a part of the MEM, was responsible for coordinating, monitoring, and evaluating programs and activities in the energy sector. The DoE had three divisions: conventional energy, renewable energy (RE), and planning. Each division was responsible for collecting data on sector activities and supporting coordination among stakeholders relevant to its focus area. 6. The electricity sector in Lesotho was vertically unbundled. The Lesotho Highlands Development Authority (LHDA) was mandated to generate electricity while the state-owned Lesotho Electricity Company (LEC) was the country’s monopoly electricity transmission, distribution, and bulk electricity supply company. The electricity sector was regulated by the Lesotho Electricity and Water Authority (LEWA) which is responsible for issuing licenses for electricity supply activities; setting tariffs for generation (including feed-in tariffs), transmission, distribution, and supply; regulating the quality of supply; and resolving disputes. Rural electrification efforts in Lesotho involved a mix of sector institutions. While LEC was responsible for rural electrification projects within its service territory (within 3.5 km from the existing distribution network), the Rural Electrification Unit (REU), which was a project implementation unit under the DoE, coordinated and managed the implementation of off-grid and rural electrification projects outside the LEC service area. REU projects were funded through the Universal Access Fund (UAF) managed by LEWA. 7. Access to electricity services was low countrywide, and even more so in rural areas. The national electricity access rate stood at 38 percent in 2016, with 60 percent for urban and peri-urban households and 18 percent for rural households. These access rates had largely been achieved due to the push by the Government at the time to accelerate electrification through an annual budget for electrification and funding from the UAF. Almost all those with access to electricity were grid connected. However, majority of the country was mountainous with low population density, making grid extension to these areas very difficult. In the absence of electricity access, many rural Basotho relied on inefficient sources of fuel to meet their household energy needs. The Government set an electrification target to bring electricity to 75 percent of households by 2022 and promote the safe and efficient use of cleaner fuels. 8. Electricity demand in Lesotho outstripped available domestic supply, leaving the country reliant on electricity imports. Electricity was mainly supplied by the Muela Hydro Power Plant (72 MW) managed by the LHDA, and imports from South Africa and Mozambique (55 MW). The estimated peak demand was estimated at 145 MW, a significant proportion of which came from manufacturing/garment industry. LEC forecasted that it will import over 282 GWh of electricity from South Africa and Mozambique (EDM) to meet the peak demand in 2016-2017, at prices ranging from M 0.77 to 1.50 per kWh, while purchases from MHP are just M 0.13 per kWh. In 2015, electricity imports Page 5 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) accounted for 66 percent of LEC’s supply costs. The energy supply gap was not limited to electricity – Lesotho also imported all its petroleum needs from South Africa and only had a maximum of three days of fuel reserves in the country at any time. The Government wanted to reduce this dependence on electricity imports and increase energy security by exploiting Lesotho’s vast, untapped RE potential. 9. Lesotho is fortunate to have an abundance of RE resources and realizing this potential was a focus of the Government’s Vision 2020 Strategy. Wind potential exceeded 1,000 W/m2 in certain pockets of the country, and global horizontal irradiation exceeded 5.3 kWh/m2 in most parts of the country. Realizing the potential of these resources was a focus of the Government’s Vision 2020 strategy and viewed to be a potential catalyst for job creation and growth in private sector investment. Investment in RE was viewed as a mean to address many of the energy sector challenges being faced by Lesotho, while decarbonizing the country’s energy mix. Increased generation capacity from utility-scale solar photovoltaics (PV), wind, and hydropower could reduce Lesotho’s dependence on imports from South Africa. The Government of Lesotho, with the help of development partners, made some progress in RE potential assessment and technology piloting, e.g., the 281kW solar PV pilot installation at the Moshoeshoe I International Airport and several small hydropower plants in the country. 10. Despite significant RE potential, large-scale development and private sector investment was not materializing. The constraints limiting RE development and deployment in Lesotho included: (i) regulatory and institutional barriers, such as an incomplete legal and regulatory framework, overlapping institutional mandates, and lack of technical standards on RE installations and appliances, creating an uncertain investment climate; (ii) technical and capacity barriers, such as irregular, outdated, and incomplete RE resource and energy baseline studies as well as limited knowledge and capacity from the institutional to end-user level; (iii) environmental barriers, such as declining biomass stock, increasingly variable rainfall and periods of drought, and limited availability of suitable land for RE development, increasing the cost of deployment; (iv) financial barriers, such as limited access to financing and underdeveloped delivery mechanisms for households and private sector, and high cost of distributing RE technologies to dispersed and remote communities in Lesotho; and (v) social barriers, particularly the lack of awareness among Basotho about the health and cost saving benefits of RE technologies, limiting RE uptake. Rationale for World Bank Assistance 11. Scaling Up Renewable Energy Program in Low-income Countries (SREP) is part of the Strategic Climate Fund under the Climate Investment Funds (CIF). CIF supports developing countries as they move toward low emissions and climate resilient development. The CIF provides developing countries with grants, concessional loans, and risk mitigation instruments that can achieve significant leverage of private sector resources, investments from multilateral development banks (MDBs), and other co-financing. The objective of the SREP is to pilot and demonstrate the economic, social and environmental viability of low carbon development pathways in the energy sector by creating new economic opportunities and increasing energy access using renewable energy. In June 2014, the SREP Sub- Committee approved the selection of 14 new SREP pilot countries, including Lesotho. 12. In June 2015, the Government of Lesotho was invited to take a leadership role in working with MDBs to develop a full SREP Investment Plan (IP). The Government was committed to promoting the development of renewable energy in Lesotho and to that end, expressed its interest to be one of the pilot countries under SREP and was selected in the pilot country list. This presented an important opportunity for Lesotho to begin an evidence-based investment planning process that could serve as a basis for developing the share of renewable energy generation in its energy mix. In June 2015, the SREP Sub-Committee allocated a grant envelope US$300,000 for the Government of Page 6 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) Lesotho to develop its SREP IP, purpose of this activity. Lesotho SREP IP had to be prepared in collaboration with the WB, AfDB, IFC, and other relevant public and private sector stakeholders. Upon endorsement of the SREP IP by the SREP Sub-Committee, the Government of Lesotho would become eligible for funding support from SREP to implement its IP, provided that funding for the projects and programs proposed in the investment plans would be available under the SREP 13. The SREP program was a good fit for Lesotho’s energy sector given the country’s pressing need to develop renewable energy projects. More than half of Lesotho’s energy consumption was imported from South Africa and Mozambique, with the balance supplied locally from hydro resources. Lesotho’s indigenous energy resources were only from renewable sources, including biomass, wind, solar and hydro. The Government was keen to develop its renewable energy resources in order to increase access to electricity, reduce its energy dependency on imports and lower the carbon content of its electricity. The Government would work to align the SREP IP with all national strategies, policies and ongoing activities in the sector. The IP would demonstrate how the proposed activities will lead to the reduction of barriers for renewable energy development and market transformation. 14. The SREP IP was complementary to other support provided by the World Bank Group and development partners. At the initiation of the Lesotho SREP IP preparation, IFC was advising the Government of Lesotho on a nationwide wind measurement project, with the support of several donors, including the World Bank’s Energy Sector Management Assistance Program (ESMAP). The Government had also commissioned a desktop study of several small hydro schemes and was in discussion with IFC about the possibility of the supporting the Government in taking one or more of them through feasibility and developing them as PPPs. Additionally, the Government was also in discussion with IFC about the possibility of Lesotho being a pilot country for a standardized, competitively tendered solar PV PPP model. As part of the EU’s ongoing capacity building program with the DoE, it was funding the preparation of an electrification masterplan to guide sector planning, and formally establish what areas are destined for grid extension. The masterplan would define the areas that would be served by the grid and the areas that would require decentralized services. The Italian Cooperation was also supporting the DoE to develop a detailed Lesotho solar resource mapping. The SREP IP would be a complementary program to this and part of an overall strategy to reach universal access in Lesotho. Project relevance to higher level objectives 15. The SREP IP was aligned with the Government of Lesotho’s electrification objectives and would demonstrate the implementation of the Lesotho Energy Policy 2015–2025. The SREP IP was intended to be a Government of Lesotho’s official RE roadmap. The overall goal of the program was to enable increased adoption of the priority technologies through the development of commercial on-grid and off-grid RE markets. This focus aligned with the Government’s Vision 2020 goals to increase private sector investment in infrastructure and promote increased use of RE. In the absence of a mature legal and regulatory framework, SREP funds would be used to facilitate private investment with support to the first privately funded RE projects and provision of technical assistance to develop missing pieces of the enabling environment. With SREP support, Lesotho hopes to have a self-sustaining market for on- grid and off-grid investment by the early 2020s. 16. The project was aligned with the World Bank Group’s twin goals of poverty reduction and shared prosperity and the Sustainable Development Goals (SDGs). Reliable and expanded electricity supply is a key determinant of productivity and competitiveness and is critical to enable economies to attract investments, expand and diversify production, and ultimately create jobs. Insufficient and unreliable electricity was one of the major constraints in Page 7 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) Lesotho’s investment climate and an evidence-based investment plan for renewable energy represented the first step to addressing these development challenges. This project was an important contribution to achieving SDG 7, consisting of ensuring access to affordable, reliable, sustainable, and modern energy for all by 2030. 17. It was also aligned with the themes elaborated in the Lesotho Country Partnership Framework (CPF) 2016- 2020 and draft Performance Learning Review 2016–2020 (PLR136011). The CPF for Lesotho was closely aligned to Vision 2020, and its supporting operational document, the National Strategic Development Plan 2013-2017 (NSDP), which identified inclusive growth as the key development objective, building on five focus areas of infrastructure, skills, technology, health, and environment. The CPF was crafted to address the high priorities of the NSDP in two focus areas: (i) improving efficiency and effectiveness of the public sector; and (ii) promoting private sector job creation. The SREP would come under focus area II: private sector job creation, which includes water and renewable energy supply for industrial, agriculture and export opportunities. Promoting private sector-led investments in renewable energy would help create jobs and sustain general business activities in rural areas. It will also help rural communities grow by facilitating income-generating activities. The SREP IP, which was a direct output of the CPF, would therefore further national and World Bank strategic objectives by establishing a rigorous and comprehensive plan for investments in energy. Theory of change 18. The project ultimately aimed to improve socio-economic development in Lesotho. The theory of change underlying this outcome begins with the activities that are part of the grant programming, such as consultations and development of a renewable energy investment plan. The output, the investment plan, would then be adopted by the government. The important assumption making the link between the IP and the long-term outcomes is that the implementation of the IP leads to more investment in renewable energy. It is possible for an IP to be adopted and exist de jure but not be executed. In this case, there would be no tangible long-term development outcomes. 19. This assumption is justified as investment activities have materialized to implement the SREP IP, such as the Lesotho Renewable Energy and Energy Access Project (LREEAP). Following the government adoption of the SREP IP, the Lesotho Renewable Energy and Energy Access Project (P166936), a US$52.9 million investment (US$40 million IDA, US$8 million SREP loan and US$4.9 million SREP grant), was prepared and approved in January 30, 2020 with the aim to increase RE-based off-grid electrification and increase access to electricity in rural and peri-urban areas of the country. This investment builds on the pipeline established under the IP. Specifically, the World Bank prepared the Distributed RE component of the SREP IP under the project component “Rural Electrification by Mini-grids” for which the SREP allocation (US$8 million loan and US$2 million grant) will be complemented by an IDA credit allocation (US$10 million). Additionally, the Bank also allocated US$2.9 million of SREP grant for technical assistance and implementation support under the project. SREP funds were also allocated – under AfDB management - to support the first privately-owned utility-scale RE plant in Lesotho and development of a RE integration study. The SREP IP was thus, a critical step to mobilize IDA financing and private sector investment, and attract other donor financing (e.g., UNDP, ADFD, EIB and JICA) to contribute to Lesotho's clean energy access expansion. 20. Assuming that the IP will be executed and lead to increased investment in renewable energy in Lesotho, important development benefits can be realized. In addition to extensive assessment of potential economic benefits from the implementation of the Lesotho SREP IP, a 2016 World Bank literature review titled, “Energy, Economic Growth, and Poverty Reduction”, critically assesses the research on the relationship between the energy sector and economic growth. It identifies studies that provided evidence of benefits of energy projects by examining links in the Page 8 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) following areas: (i) infrastructure and GDP, (ii) energy use and GDP; (iii) power outages and the performance of business; and (iv) household connections to electricity supply and various economic outcomes (income, employment, education, health, etc.). 21. The literature review provides insights into the importance of the SREP IP. Two studies by Calderon and Serven (2010a), and Calderon, Moral-Benito, and Serven (2011) have measured the stock of infrastructure in the power sector by the installed generation capacity. The results obtained provide strong support for the hypothesis that the stock of infrastructure is a determinant of the rate of economic growth of countries and by extension that the size of the power sector is a factor in determining the growth and level of GDP.1 22. Error! Reference source not found. presents a results chain diagram to summarize the pathways by which increasing renewable energy infrastructure can contribute towards reaching the development outcomes outlined in paragraph 17. Figure 1: theory of change 23. Evidence of the adoption of the SREP IP is available here: https://www.climateinvestmentfunds.org/sites/cif_enc/files/events/files/srep_co- chairs_summary_december_2017_0.pdf Project Development Objectives (PDOs) The project development objective is to support the Government of Lesotho to prepare a renewable energy investment plan for consideration by the SREP for funding. The PDO remained unchanged throughout the project. Key Expected Outcomes and Outcome Indicators 24. There was only one PDO level results indicator: renewable energy investment plan prepared (yes/no). 25. There was only one intermediate results indicator: stakeholder consultations and finalization for the investment plan (yes/no). 1 Bacon, R., and M. Kojima, Energy, Growth, and Poverty Reduction: A Literature Review, The World Bank Group, 2016, pg. 7-9. http://documents.worldbank.org/curated/en/312441468197382126/pdf/104866-v1-REVISED-PUBLIC-Main-report.pdf Page 9 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) Components 26. The project had a single component: to provide Technical Assistance to the Government of Lesotho to draft its SREP Investment Plan, including i. Compiling background information on the country and energy sector; ii. Conducting a comprehensive assessment of various renewable energy technologies applicable in the territory of the Recipient; iii. Identifying specific prospective renewable energy technologies applicable in the territory of the Recipient; iv. Preparation of the draft Investment Plan for developing renewable energy in the territory of the Recipient, based on due diligence findings and stakeholders’ consultation; 27. The project’s work program oversaw the development of the IP through MDBs joint missions to Lesotho and consultations with relevant stakeholders. The project hired a Consulting firm in January 2017 to support the preparation of the IP, and an individual Consultant to review the final IP prior submission to SREP Sub-Committee (on November 06, 2017). The Lesotho SREP IP was the result of a consultative process, led by the Government and represented by the DoE to identify priority RE technologies for development in the country. The consultations included a broad range of government agencies and representatives from the private sector, civil society, and international development partners. There were four consultations over the course of the IP’s preparation. A Scoping Mission, conducted in January 2017 was used to discuss the overall strategic approach of the IP with Government and energy sector stakeholders, commence data collection, understand the Government’s strategic priorities and challenges facing the energy sector. Following the mission, an Options Study (OS) was prepared and shared with Government, National Task Force, and MDBs for review (March 2017). The OS laid out the energy sector background, an assessment of the potential of various RE technologies in Lesotho as well as the main barriers to their development. Based on comments received on the OS, the Consultant developed a draft IP and distributed it in April 2017 for comments and discussion with the main stakeholders. 28. In May 2017, a Joint Mission was conducted to verify the correctness of the overall approach, identify priority projects and to gather additional materials needed for updating and finalizing the draft IP. During the Joint Mission, discussions were conducted with the DoE, private sector, NGOs, and donor agencies to ensure that the technology and models proposed in the draft IP were coherent and complementary with ongoing activities in Lesotho in terms of RE development and the energy access expansion program. The preparation of the SREP Investment Plan for Lesotho was completed in October 2017, and it was endorsed by the Government of Lesotho in November 2017. In December 2017, the SREP Sub-Investment Committee approved the SREP Investment Plan presented by the Lesotho delegation. 29. The project’s final disbursement rate was 86.4 percent. The activity did not require the entire amount allocated under the grant so there was no need for further disbursement. The final disbursement of the project was concluded on December 30, 2018. Page 10 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) II. OUTCOME Assessment of Achievement of Each Objective/Outcome 30. The Project Development Objective (PDO) is to support the Government of Lesotho to prepare a renewable energy investment plan for consideration by the SREP for funding. The grant achieved the preparation and approval of the IP. 31. The SREP IP identifies two on-grid technologies (solar and small hydro) and three off-grid technologies (microgrids, SHS, and improved cookstoves) that best fit the Government and SREP objectives for RE investments. The SREP IP presents the total technical capacity of renewable resources as 2,300 MW, with annual energy generation potential of 5,900 GWh displayed in Table 3. Lesotho’s SREP program consists of two core investment focused components: (i) On-grid RE Technologies, and (ii) Distributed Renewable Energy (RE) Solutions. A third component was added to address the Government’s concerns that a lack of data on project sites would limit the possibility of private sector HPP investment. SREP funds will be used to support the first privately-owned utility-scale 20 MW solar PV plant in Lesotho and development of a RE integration study. These activities will be implemented by AfDB. In parallel, AfDB will support site specific studies for solar PV projects. The SREP funded off-grid activities consist of financing support for microgrids and other distributed RE technologies (SHS or other stand-alone systems). The World Bank will implement these activities. The completion of these projects is not an outcome of the SREP IP which only assists with preparation and financing. However, when they are completed, the projects will contribute to further development outcomes, such as increasing access to electricity, improving energy security, and increasing private sector investment. Table 3: Summary of RE technical potential 32. The SREP IP has formulated a financing plan along with estimates of the commitments from MDBs, Government, donors, and the private sector totaling US$86.7 million. US$18.5 million of SREP funding is expected to catalyze over three times as much investment, most of it from the private sector (as equity or debt), and the MDB co- sponsors. The Lesotho SREP IP financing plan is displayed in Table 4. These funds will be used to build off the US$7 Page 11 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) million already committed by the EU, UNDP-GEF, and Government of Italy to develop parts of the enabling framework and pilot projects that are laying a strong foundation for SREP funded projects. It is expected that: (i) US$5 million of SREP funding, in the form of a concessional loan, will be used to leverage US$11.5 million in grants and private concessional loans (or a PRG) from AfDB, US$7.5 million in equity contributed from the developers of a 20 MW solar PV project, and US$ 6.9 million in additional financing from either a private lender or other DFI; (ii) US$12 million of SREP funding (US$4 million in grants, US$8 million in concessional financing) will be used to leverage US$10 million in financing from the World Bank, and US$20 million in investment from other private sector investors in microgrids and other distributed RE technologies. These funds will be complemented by another US$4.8 million from other donors; (iii) US$1.5 million in SREP grants will be used for an AfDB managed RE integration study (US$0.6 million); and World Bank managed site-specific pre-feasibility studies (US$0.9 million). The Government of Lesotho will contribute by facilitating fiscal incentives for services associated with the financing plan. These incentives will possibly include waiving corporate profit tax for the first 10 years of operation and excluding RE technology sales from VAT. Table 4: Lesotho SREP IP Financing plan (US$ million) 33. Of the US 18.5 million SREP funding, the World Bank project, Lesotho REEAP (P166936), approved in January 2020, will be using SREP loan of US$8 million and SREP grant of US$2 million to finance rural electrification by mini grids. This includes: (i) Rehabilitation and upgrading of LEC mini grid at Semonkong (SREP loan US$3.5 million, SREP grant US$2 million) (ii) Mini grid development under PPP models (IDA US$10 million, SREP loan US$4.5 million) Additionally, as part of the project, the World Bank will also use the SREP grant of US$2.9 million to provide technical assistance and implementation support. This includes: (i) Project implementation and coordination support (SREP grant US$2.5 million) Page 12 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) (ii) Women’s employment, female entrepreneurship, consumer education and citizen engagement, and productive uses of energy (SREP grant US$0.4 million) 34. The expected results of the investment are displayed in Table 5. The investments proposed in the IP can have a transformative impact on Lesotho’s energy sector and are responsive to the SREP indicators. Utility-scale investments can help the country diversify and increase its generation capacity to meet future demand and reduce its dependence on expensive electricity imports. Investments in microgrids and distributed technologies can accelerate electrification and energy access in rural areas, improving the quality of life and livelihoods of the population. It is important to note that this is not a direct outcome of the project; the ICR is only including this to highlight the importance of the IP and its project pipeline and financing plan and illustrate how it is a foundational planning document to reaching the energy sector’s goals. Table 5: SREP IP expected results SREP Indicators Expected Results Increased supply of renewable 91.5 GWh, including energy • 61.5 GWh from the 20 MW solar PV plant (on-grid RE project) • 30 GWh from the technologies in the Distributed RE Solutions project Increased access to electricity • 32,500 men through renewable energy • 32,500 women • 500 SMES & Community services Low carbon development pathways 125,000 t CO2 Gender impacts • Job creation and/or increase economic activity, thereby improving the lives of women • reduced burden of collecting and purchasing fuel. Impact on job creation • Multi-year construction jobs as well as long term jobs • Increased economic activity Increased accessibility and Projects using a sustainable approach based competitiveness of renewable on increased private sector participation energy Impact on economic, social and • Increased energy security and electricity access (esp. in rural areas) and environmental development reduced reliance on imports • Increased government and private sector experience and capacity to develop RE projects in Lesotho • Reduction of GHG emissions and environmental pollution Page 13 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) Overall Outcome Rating 35. Satisfactory. The project only had one PDO objective, to create a renewable energy investment plan for Lesotho. This was achieved when the plan was delivered to the SREP sub-committee on December 14, 2017. Although the officially approved indicator is an output, the project’s achievement has been assessed against a deeper outcome of projects prepared and financed. As a result of the IP being approved, the project achieved further outcomes of catalyzing finance beyond the expectations of the SREP IP: World Bank contribution to SREP financing plan was four-fold the expected co-financing (US$10 million in SREP IP ended up being an IDA US$40 million in LREEAP), and private sector contribution is also expected to surpass planned amount only with on-grid PV projects under preparation (two projects 20MW and 70MW). Other Outcomes and Impacts 36. No other outcomes or impacts relating to institutional strengthening, poverty or shared prosperity are reported. The IP is an important foundation for mobilizing private investment into Lesotho’s energy sector, but it did not have a direct impact on mobilizing private finance. The IP also served as foundation for the Lesotho Electrification Masterplan, endorsed by Cabinet in June 2019. SREP IP is so far, the most comprehensive public document on RE potential and development in Lesotho. III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. Key factors during preparation 37. The energy sector in Lesotho had some challenges in terms of availability of data. There was a lack of basic data and/or studies. In addition, financing and delivery mechanisms for electrification needed to be strengthened (e.g. rural access where there are cash flow problems, weak local capacity for maintenance of RE equipment, need to import RE components). Moreover, capacity development and training were necessary for key stakeholders from the institution to end user levels. Improvement of the sector legislation and regulatory frameworks was also required to attract private sector investment. 38. A stock of ongoing initiatives in the energy sector had to be taken to avoid duplication of efforts. The UNDP (SE4All financed by GEF) and the European Union (EDF10 and 11) were supporting similar activities including the preparation of an Investment Plan for off-grid solutions which had not yet commenced. The Government of Lesotho through the SREP National Task Force, with the support of the World Bank, had to ensure that coordination was well handled. B. Key factors during implementation 39. The project did not experience any major implementation delays. The last ISR – filed on May 9, 2019 - rated project implementation as ‘Satisfactory.’ IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME Page 14 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) A. Monitoring and evaluation 40. The rating for Monitoring and Evaluation (M&E) design, implementation and utilization is substantial. A results framework was included in the SREP and entities that would be responsible for implementation arrangements and monitoring and evaluation of the SREP IP activities were identified. One ISR was filed for this project and three implementation support missions were completed. Missions aide-memoire were disclosed on WB and CIF websites. B. Bank performance 41. Bank performance was satisfactory. The SREP IP was realistic and well designed, according to the SREP Sub-Committee peer review expert and comments received from SREP donor countries representatives. It fits within the broader SREP activities. The IP, rather than remaining a stagnant document, informed the preparation of an investment lending project in Lesotho’s energy sector. The World Bank is preparing the Distributed RE component of the SREP IP, under the Lesotho Renewable Energy and Energy Access Project (P166936) which should contribute to increase access to electricity in Lesotho using RE resources. The SREP allocation will be complemented by an IDA credit allocation under the project. The SREP IP delivered through this activity has been a critical step to mobilize IDA financing, and attracting other donor financing (UNDP, ADFD, EIB) to contribute to Lesotho's energy access expansion. 42. The World Bank team provided adequate and constructive oversight of the project to help ensure it reached its objective. The World Bank led a joint mission in May 2017 where the DoE, private sector, NGOs, and donor agencies reviewed and discussed the draft SREP IP and agreed with the Government of Lesotho on the priority investments. C. Risk to Development outcome 43. The risk to development outcome is low. The SREP IP implementation is already about to surpass financing leverage for its pipeline projects. The World Bank IDA-financed Lesotho Renewable Energy and Energy Access Project (P166936) was prepared and approved on January 30, 2020, with US$52.9 million (IDA US$40 million, SREP loan US$8 million, SREP grant US$4. million) to finance its project development objective of increasing access to electricity in rural and peri-urban areas of Lesotho. Additionally, no major issues were encountered throughout the project. The completion of the IP depended on collaboration of key stakeholders including the Government. An SREP focal point was appointed at the DoE to coordinate and a National Task Force was in place to increase ownership. V. LESSONS LEARNED AND RECOMMENDATIONS 44. Projects that are closely aligned with national sector strategic priorities are more likely to succeed. The SREP IP remained closely aligned to the Government’s strategic goals for the energy sector. Due to this, the will to follow through on the work remained to see it to completion. 45. Energy sector planning is critical to meet energy sector strategic goals. The project catalyzed donors and stakeholders to address a need in Lesotho’s energy sector planning. As a result, there is now a project pipeline Page 15 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) and a financing plan that is the foundation for investments required to meet energy sector strategic goals. Additionally, based on the SREP IP, a new World Bank investment lending operation has been prepared. 46. The client needs to identify and mandate the entities responsible for implementation arrangements and monitoring and evaluation. The client needs to identify entities that would be responsible for implementation arrangements and monitoring and evaluation related to the two SREP activities in Lesotho moving forward and ensure national level coordination and ownership in terms of monitoring and evaluation to achieve higher level objectives of the Government. 47. Technical assistance to Client countries for SREP IP preparation – or any pre-investment technical assistance – should anticipate the need for further assistance during the preparation of investment project. Lesotho was a new SREP country and MEM/DoE had no formal engagement with MDBs on energy prior the SREP IP. As a result, DoE’s capacity and budget to conduct required due diligence for project preparation, in particular on Environmental and Social Safeguards, was limited. It resulted in substantial delays in LREEAP project preparation, which could have been avoided if the SREP IP technical assistance had also made provision for Client support to prepare the project. . Page 16 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Formally Revised Actual Achieved Indicator Name Unit of Measure Baseline Original Target Target at Completion Renewable Energy Investment Plan Prepared Yes/No No Yes Yes 15-Aug-2016 31-Dec-2018 02-May-2019 Comments (achievements against targets): The draft IP was submitted by the Consultant. Scaling up Renewable Energy Investment Plan for Lesotho was delivered in October 2017 by the Consultant to Lesotho Department of Energy, endorsed on November 03, 2017 by Minister of Development Planning and publicly disclosed the same day. Formally Revised Actual Achieved Indicator Name Unit of Measure Baseline Original Target Target at Completion DD-MM-YYY DD-MM-YYY DD-MM-YYY Page 17 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) Comments (achievements against targets): A.2 Intermediate Results Indicators Formally Revised Actual Achieved Indicator Name Unit of Measure Baseline Original Target Target at Completion Stakeholders consultation and Finalization of the Yes/No No Yes Yes investment plan 15-Aug-2016 30-Apr-2017 22-May-2017 Comments (achievements against targets): Page 18 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) B. ORGANIZATION OF THE ASSESSMENT OF THE PDO Objective/Outcome 1 Outcome Indicators 1. Renewable Energy Investment Plan prepared (yes/no) 1. Stakeholder consultations and finalization of the investment plan conducted (yes) Intermediate Results Indicators 2. Government of Lesotho endorsed the plan (yes) 3. Approval after Presentation of the investment Plan to SREP Subcommittee completed (yes) 1. Two core components: (i) On-grid RE Technologies, and (ii) Distributed Renewable Energy (RE) Solutions. 2. For on-grid RE technologies, support the first privately-owned Key Outputs by Component utility-scale 20 MW solar PV plant in Lesotho and development of a RE (linked to the achievement of the Objective/Outcome 1) integration study. 3. Off-grid activities consist of financing support for microgrids and other distributed RE technologies (SHS or other stand-alone systems). Page 19 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) . ANNEX 2. PROJECT COST Amount at Approval Actual at Project Percentage of Approval Components (US$M) Closing (US$M) (%) Preparation of the SREP IP for Lesotho and associated 0 0.288 100 technical assistance - - - - - - - - - - - - Total 0.3 0.288 Page 20 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) ANNEX 3. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS - Endorsement letter from the Government of Lesotho for the SREP IP (October 26, 2017) Page 21 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) Page 22 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) ANNEX 4. SUPPORTING DOCUMENTS (IF ANY) The project work schedule is displayed in the table below: Action Date Project approval October 9, 2016 Approval of Preparation Grant Proposal to SREP Subcommittee October 5, 2016 TORs for Consultant and Candidate September 15, 2016 Hire Consultant January 2, 2017 TORs for the Joint Mission sent to the SREP Sub Committee February 28, 2017 Clearance of TOR for Joint Mission by CIF AU March 15, 2017 Finalization of the draft IP April 30, 2017 MDB Joint Mission and stakeholder consultations to review the results of the May 15-18, 2017 draft IP and way forward Revision of the draft IP October 16, 2017 Disclosure of IP for public consultations (following country’s practice) October 16-20, 2017 Submit SREP IP to Expert for quality review October 20, 2017 Revision of the IP based on comments received and endorsement by the GoL October 31, 2017 Submission of the package (IP, endorsement letter, PPG request, Independent November 3, 2017 Review Report) to the SREP Sub-Committee Endorsement by SREP sub-committee December 14, 2017 Project closing December 30, 2018 Page 23 of 23