Annual Project Report (APR)

For project: ___UZB/03/001 Transfer of Technology for Local Production of Solar Panels for Water
Heating (DANIDA)________

Period covered: __11 July 31 December 2003__

PROJECT PERFORMANCE CONTRIBUTION TO THE PROJECT OBJECTIVE

Project Objective: To contribute to the development of solar heating panel production in Uzbekistan by
assisting local manufacturers to access relevant European technology and by ensuring that these panels
become the preferred element in the heating systems of cities in Uzbekistan.

Strategic Area of Support: The project strategy aims to contribute to fostering the development of a
largely independent solar panel production industry in Uzbekistan which is sustainable and competitive in
the market.

The project is focused on two strategic directions in developing the renewable energy sector in
Uzbekistan:

1. Building national and local capacity for the implementation of projects addressing the
development of sustainable energy sources; and
2. Demonstrating innovative approaches which encourage positive changes in energy
saving policies.

Project Progress: The Project Document and Budget was signed by the Tashkent Municipality
(Khokimiyat) and UNDP on 11 July 2003 and project implementation started with the recruitment of the
Project Manager on August 4, 2003. The International sub-contract funded by the Danish Trust Fund and
administered by UNOPS was approved with Danish Company RAMBOLL on August 22, 2003. RAMBOLL
is a leading consulting company with access to expertise for engineering, design, installation, training and
market strategies development. The first mission of RAMBOLL (Mr. Flemming Ulbjerg, Solar Panel
Expert) took place from September 22-28, 2003. The local manufacturer of solar panels as a recipient of
the new technology, equipment and materials was selected on the basis of criteria developed by the
RAMBOLL. The tender documentation for the equipment was elaborated with input from the RAMBOLL,
and the international tender process for procurement of the equipment and materials was launched on
November 30, 2003.

Annual Outputs Update on outputs Reasons if progress Recommendations and

1. Study, implemented, 1.1 Collecting of information
including available for market analysis
recommendations for and market plan; data on
optimal set-up of solar boiler plants potential for
panel production in solar heating plants, data on
Uzbekistan potential consumers;
information on national and
municipal investment
strategy to water solar
heating implemented and
the relevant reports and
memos prepared
1.2 Gathering of information
on the experience from Tacis
demonstration solar panel
projects, including technical
and economic indices, to
assess the market
development opportunities,
weaknesses and strengths
and efficiency of solar
panels operation,
implemented
below target proposed action
The market and feasibility To finalize the Report on
studies should have been market and feasibility
revised and updated by analysis by the end of
October 31, 2003, but the January 2004.
International Sub-Contractor The International
requested to postpone the Subcontractor, RAMBOLL
deadline to the end of and a National Consultant
January 2004. Since the on Market Studies.
project started working in full
capacity only in August
2003, it was not considered
realistic to analyze the
information and data
collected and to update the
existing studies by October
2003.

2. Factories adapted and
equipped with functional
assembly lines to produce
solar panels
3. New design of solar
heating panels
4. Capacities for
marketing, installation,
operation and
maintenance of solar
panels strengthened
5. Marketing, distribution,
installation and operation
of solar panels
implemented
6. Strategy for replication
and policy adjustments
developed
1.3 Analysis of the
ecological situation and
assessment of thermal
energy impact on the
environment undertaken;
and proposal on selection of
potential sites to install solar
collectors developed
2.1 The optimal size of the
factory determined;
development of selection
criteria and competitive
selection of local
manufacturers implemented
2.2 Specifications for the
equipment prepared
2.3 International tenders
process started
2.4 Factory layout and
necessary renovations
designed
2.5 Factory/ies renovation
implemented
Preliminary analysis of
technical performance of
solar panels installed within
Tacis demonstration project
at Vodnik boiler house
undertaken to be a starting
point for new design of solar
panels.
6.1 TOR for local company
to undertake a public
awareness raising campaign
on energy savings and
alternative sources of
energy developed;
competitive selection of local
companies launched
. The other activities planned
There are few local
companies that can meet
the objectives of the public
awareness raising
campaign, i.e. combine the
professional knowledge in
the sphere of renewable
energy sources and energy
savings and implement well
designed informational
campaign using the mass
media tools.
to achieve the output will be
implemented starting from
the first quarter 2004 when
the winner of the tender will
provide the list of equipment
to be delivered
The activities planned to
achieve the output will be
implemented starting from
the first quarter 2004. These
activities depend on
installation, and
commissioning of the
equipment and
manufacturing of solar
panels
The activities planned to
achieve the output will be
implemented starting from
the first quarter 2004. These
activities depend on
installation, and
commissioning of the
equipment and
manufacturing of solar
panels
To select a company which
is able to design and
implement public awareness
raising campaign on energy
savings and alternative
energy sources.
PROJECT PERFORMANCE IMPLEMENTATION ISSUES

1. The main challenge faced by the project is that practical application of solar collectors to be
produced that can demonstrate the advantages of solar energy use have to be carefully considered.
The key objective is to demonstrate that solar panel systems allow saving of natural gas while
providing the customers with hot water, especially in summer period. The Project would need to
support installation of solar panels on those sites, where they can demonstrate an efficient operation
from economic, technical and energy savings point of view, and where they can contribute to
improving living conditions, and address issues related to climate change, localized pollution,
increased energy demand and eventual fossil-fuel depletion. To solve the problem, the project
implemented and plans to undertake the following activities:
A highly qualified national expert was hired to undertake an assessment of the findings and results of
previous solar energy projects in collaboration with RAMBOLLs Solar Panel Specialist; on the basis
of this assessment, recommendations on potential sites for installation of solar panels will be
developed;
A proposal for a project that can be implemented to demonstrate an efficient operation of the solar
collectors, to be produced and submitted to UNDP management and UNDP Environment
Programme.

2. The other challenge faced by the project is lack of funds, necessary for purchase of local
materials for manufacturing of 400m2 of solar panels. Originally a small amount of funds for purchase
of local materials was allocated in the project budget, as it was envisaged that additional funds would
be allocated by the local partner manufacturer. The FOTON Plant, selected as a local manufacturer
for solar panels, informed that it was not in a position to contribute local materials to the production,
according to the local tax legislation, tax is paid on the turn-over of an enterprise, and therefore all
costs have to be recovered from sales. According to UNDPs rules, the solar panels produced using
the equipment and material granted, cannot be sold at profit. The Uzbek partners requested UNDP to
allocate additional funds for purchase of local materials; however, UNDP considered that the local
partners have to cover this shortage of funds as their contribution to this project. To solve the problem,
the project implemented and plans to undertake the following activities:
The project and Tashkent Municipality met the JSC FOTON plant management to consider and
discuss all possible ways of collaboration to resolve the issue related to the lack of funds for purchase
of local materials and installation works in Vodnik testing solar field.
The Tashkent Municipality considered its capacities for timely investments into the above project and
included the funds required to install solar panels in Vodnik testing field into the 2004 budget of the
Tashkent Municipality via the Tashkent Territorial Communal Operational Department.
As far as the project is a pilot and demonstration project that requires support of the Government,
such as e.g. a special Government resolution on tax exemption for the local solar panel
manufacturers (tax holidays) and a set of privileges and incentives for further development of such
innovative technologies, the Tashkent Municipality and FOTON Plant agreed to jointly develop and
submit such a proposal to the Government.
It was decided to involve the second candidate, the Scientific and Production Enterprise ENCOM
(medium size private company), which participated in the competitive selection of local manufacturer.
ENCOM Company confirmed its willingness to invest in purchasing of local materials and assembling
of solar panels based on their previous similar experience within the Tacis project. The equipment
granted will be shared between the two local manufacturers. This will allow for the project to create a
market competitive environment and to avoid possible monopolization of solar panel manufacturing.

LESSONS LEARNED

1. Since the project is a pilot, demonstration and investment project, strong attention should be
given both to technical aspects and the economic and financial situation of the local enterprises that
would be a subject of technology and equipment transfer. The local legal environment that regulates the
operation of production enterprises as well as tax and custom legislation have to be carefully studied to
ensure the project feasibility, minimum capacities of the local manufacturers selected as well as their
sustainable operation. As far as implementation of such a project requires financial input of the local
partners that cannot be exactly estimated during the preparatory stage, this mater has to be discussed
and agreed with the Government as well as clearly indicated in the project document to avoid any
disputes and misunderstandings during the project implementation period.

Both positive and negative experience gained during the project implementation should be carefully
studied and taken into consideration during the lifetime of the project.

2. The projects dealing with the industrial activities should involve not only the central government
institutions but also regional and local authorities as well as small and medium size private companies,
which quite often demonstrate stronger interest and flexibility.