DOCUMENT OF THE INTER-AMERICAN DEVELOPMENT BANK

BARBADOS

SUSTAINABLE ENERGY FRAMEWORK FOR BARBADOS (BA-T1007)

PLAN OF OPERATIONS

This document was prepared by the project team consisting of: Christiaan Gischler (INE/ENE), Project Team Leader; Roco Medina (INE/ENE); Jorge Ordez (INE/ENE); Carlos Echevarra (INE/ENE); Gerard Alleng (INE/ENE); Elizabeth Beall (INE/ENE); Gregor Meerganz Von Medeazza (INE/ENE); Rochelle Franklin (CCB/CBA); Diego Buchara, (LEG/SGO).

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CONTENT

I. II. III.

EXECUTIVE SUMMARY .................................................................................................. 1 BACKGROUND AND JUSTIFICATION ............................................................................... 2 PROGRAM DESCRIPTION ............................................................................................... 3 A. B. Program goal and purpose ................................................................................. 3 Activities............................................................................................................ 4

IV. COST AND FINANCING................................................................................................... 5 Table IV-I Summary Cost (in US$) ......................................................................... 5 V. EXECUTING AGENCY AND MECHANISM ........................................................................ 6

VI. MONITORING AND EVALUATION ................................................................................... 6 VII. PROGRAM BENEFITS AND RISKS ................................................................................... 7 VIII. ENVIRONMENTAL AND SOCIAL REVIEW........................................................................ 8

ANNEXES

ANNEX I ANNEX II ANNEX III

Logical Framework Detailed Program Budget Procurement Plan

BASIC SOCIOECONOMIC DATA

For basic socioeconomic data, including public debt information, please refer to the following address: http://www.iadb.org/RES/index.cfm?fuseaction=externallinks.countrydata

ELECTRONIC REFERENCES

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ABBREVIATIONS AOP BAMC BE CCB/CBA EA EE ESCOs ESR GoB IDB INE/ENE LAC MW MA MEWD MFIE MT OTEC PM RE SECCI SEFB SME TC WE WICSBS Annual Operation Plan Barbados Agricultural Management Company Bioenergy IDB Country Office in Barbados Executing Agency Energy Efficiency Energy Service Companies Environmental and Social Review Government of Barbados Inter-American Development Bank Energy Division of the Infrastructure and Environment Department Latin America and the Caribbean Megawatts Ministry of Agriculture Ministry of Environment, Water Resources and Drainage Ministry of Finance, Investment and Energy Ministry of Tourism Ocean Thermal Energy Conversion Project Manager Renewable Energy Sustainable Energy Climate Change Initiative Sustainable Energy Framework for Barbados Small ad Medium Enterprise Technical Cooperation Waste to Energy West Indies Central Sugar Cane Breeding Station

SUSTAINABLE ENERGY FRAMEWORK FOR BARBADOS (BA-T1007) I.

Beneficiary Country: Executing agency: Target Beneficiaries: Barbados Inter American Development Bank (IDB) The Ministry of Finance, Investment and Energy (MFIE), Ministry of Agriculture (MA), Ministry of Environment, Water Resources and Drainage (MEWD); Ministry of Tourism (MT); Barbados Agriculture Management Company; West Indies Central Sugar Cane Breeding Station. Christiaan Gischler (INE/ENE), Project Team Leader; Roco Medina (INE/ENE); Jorge Ordez (INE/ENE); Carlos Echevarra (INE/ENE); Gerard Alleng (INE/ENE); Elizabeth Beall (INE/ENE); Gregor Meerganz Von Medeazza (INE/ENE); Rochelle Franklin (CCB/CBA); Diego Buchara, (LEG/SGO). IDB SECCI (SCI): Local: Total: US$ US$ US$ 1,000,000 435,000 1,435,000

EXECUTIVE SUMMARY

Team Members

Financing:

Objectives:

The general objective of the TC is to promote and support sustainable energy and energy conservations programs in order to ensure a sustainable development in Barbados and provide alternatives to minimize the dependency on fossil fuels. The specific objectives of this TC are: (i) support the preparation of the SEFB; (ii) provide technical assistance to the GoB to achieve EE in public buildings, residential sector and Small and Medium Enterprises (SME); (iii) explore alternatives for renewable energies; (iv) provide technical assistance in the preparation of a bioenergy program for Barbados, including the environmental and social impacts; and (v) provide an adequate plan for institutional strengthening in the areas Energy Efficiency (EE), Renewable Energy (RE), Bioenergy (BE) and carbon finance and dissemination of findings. Execution: Disbursement: None None 18 months 24 months

Execution timetable: Special contractual conditions: Exceptions to Bank Policies and Procedures: Environmental and social review: Coordination with Other Donors:

The ESR Secretariat reviewed the TC profile on July 28th, 2008. The proposed environmental and social strategy was approved. This TC is processed in parallel with a GEF operation intended to fund the pilot projects associated with the components II and III

-2II. BACKGROUND AND JUSTIFICATION 2.1 Barbados, a country-island of 431 square kilometers and a population of 271,000, ranks high among Latin America and the Caribbean (LAC) countries in terms of social and economic indicators. However in terms of energy, Barbados has very high dependency on fossil fuels. Approximately 90% of the electricity produced is generated from fuel oil. Since Barbadoss oil demand significantly exceeds its production capacity, the country has to import in excess of 9000 bbl/d that, together with the 1000 bbl/d produced locally, are mainly used for power generation (50%) and transport (33%). With the current high price of oil, the government of Barbados (GoB) is committed to introduce clean energy and energy conservation as means to reduce this dependency from expensive fossil fuels. Additionally, the GoB is interested on ensuring the security and stability of the energy supply, maximizing energy efficiency and achieving environmental sustainability. On the EE field the GoB has taken the leading role in adopting EE practices to command the rest of the sectors of society to follow on the efficient use of energy resources. In this light, several measures have been adopted for government facilities in the areas of official transport, government buildings, air conditioning, energy audits, lighting and electric appliances, among others. Outside their own efforts, diverse measures and incentives have been discussed to enhance EE: energy conservation programs, energy rebate programs, home energy efficiency, home energy audits, a national building code, among others. Under the MFIE the Energy Conservation Unit oversees all the EE related matters. In May 2007 the Cabinet approved a public sector EE program for public government buildings to look at the following areas: (i) energy audit for public buildings; (ii) efficient air conditioning and refrigeration programs; and (iii) public lighting programs; among other initiatives. The GoB also introduced the EE vehicle program that mandates government vehicles of 1600 cc or smaller to be the standard engine size (vehicles larger that this will have to be justified). There is also a vehicle monitoring and driver training for greater EE. For the GoB it is a priority to promote the use of renewable energies and low carbon technologies. Several quantitative goals have been established for the use of RE and the diversification of the energy matrix through the use of sources like wind, solar and bioenergy. In general it is the goal of the GoB to achieve a 10% of electricity generation from renewable sources by 2012 and 20% by 2026, as well as the incremental use of ethanol and biodiesel in the transport sector. The GoB is also focusing on supporting the use of alternative sources for Renewable Energy (RE), to promote energy conservation, reduce the oil import bill and preserve the environment. A particular incentive for supporting the use of RE, is the creation of the US$10 million Smart Energy Fund, that will provide low interest loans to households seeking to purchase solar panels to power their

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-3homes; introduce a tax rebate for the cost of installing a solar electric system; ensure all new government or government related facilities will be fully fitted with solar electric systems; and phase out the use of incandescent light bulbs from all Government buildings and private households. 2.6 One of the main issues that the Barbados energy sector has is the drain on foreign exchange created by the high cost of oil. Since 2002 the GoB has been studying the possibility of employing varieties of sugar cane with high fiber content and biomass yields as a source of RE for the production of electric energy, as a substitute of petroleum fuel which is now used in Barbados for electricity generation. The fuel cane scenario was launched as a project of the Barbados Agricultural Management Company (BAMC) in 2004. Since then, the West Indies Central Sugar Cane Breeding Station (WISCBS) has tested high fiber cane varieties with the ultimate objective of using this type of cane for electricity co-generation. BAMC has also financed feasibility studies and environmental impact assessments for the construction of a biofuel and cogeneration facility. Although the GoB has shown support to the idea of Bioenergy (BE), the current administration has requested the technical assistance of the Bank to further explore the best alternatives for a BE production program and determine the environmental and social impacts of such a program. The Sustainable Energy Framework for Barbados (SEFB) aims to develop RE, EE and BE programs and its opportunities to claim carbon credits as a response to the GoBs request of technical assistance to the Bank. This Technical Cooperation (TC) will contribute to the energy and environmental sustainability of Barbados, therefore this TC is eligible to be financed with funds of the Sustainable Energy Climate Change Initiative (SECCI). III. PROGRAM DESCRIPTION A. 3.1 Program goal and purpose The general objective of the TC is to promote and support sustainable energy and energy conservation programs in order to ensure a sustainable development in Barbados, providing alternatives to minimize the dependency on fossil fuels. The specific objectives of this TC are: (i) support the preparation of the SEFB; (ii) provide technical assistance to the GoB to achieve EE in public buildings, residential sector and Small and Medium Enterprises (SME); (iii) explore alternatives for renewable energies; (iv) provide technical assistance in the preparation of a bioenergy program for Barbados, including the assessment of environmental and social impacts; and (v) provide an adequate plan for institutional strengthening in the areas of EE, RE, BE, carbon finance and dissemination of findings. The TC will be complemented and processed in parallel with a US$1,000,000 GEF operation that would finance pilot projects for EE and RE under components II and III. The resources will be processed and requested through the

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-4Climate Change window of GEF 4 with the IDB functioning as GEF Agency. The objective of this coordinated effort is to show EEs and REs benefits in a quantitative and qualitative manner, so that government officials and the population in general, can judge the potential and expansive positive effects that this measures, if taken to reality at a larger scale, can attain over time. This approach is in direct harmony with the development effectiveness efforts that the Bank wants to implement in every project, by connecting project activities with actual measurable results. B. 3.3 Activities Component I: Preparation of the Sustainable Energy Framework for Barbados and capacity building: (i) this component will review the existing energy framework, analyze energy related regulatory and policy issues, identify barriers to the promotion of sustainable energy and provide recommendations to overcome these barriers. A baseline for the entire energy sector will be established by preparing an energy balance for Barbados that includes an energy generation (supply) and uses (demand) matrix; (ii) based on the energy needs of the country and the possibilities for adopting renewable energies, including energy conservation and energy efficiency, this component will support the preparation of a SEFB. Information from components II, III and IV will be used for the preparation of the SEFB; (iii) this component will provide technical assistance to support the preparation of legislation on EE and RE; (iv) this component will provide institutional strengthening, capacity building and training to the energy government units for RE, EE and BE. Component II: Policy Support for Energy Efficiency: (i) provide technical assistance in the preparation of guidelines for energy efficiency audits and establish standardized reporting; (ii) expand and improve EE programs in public buildings, residential sector, SMEs, and major energy consumers, as a base to prepare an EE policy. Includes an assessment of Energy Service Companies (ESCOs) viability to implement EE measures and the design of an EE pilot program; and (iii) design an EE fund and financial instrument to promote EE. Component III: Analysis and Policy Support for Renewable Energy options: (i) assess the potential for RE especially for solar, wind and other RE sources for electricity generation; (ii) provide technical assistance to support the preparation of a power purchase scheme to facilitate the purchase/sell of power from/to the grid/utility. This component will analyze the viability of mechanisms (e.g. net metering) to facilitate the purchase/sell of power, from/to the grid/utility; (iii) complement the existing financial instruments to promote RE, such as the Smart Energy Fund, with other financial alternatives to foster RE technologies; (iv) design pilot programs for RE, for example an on-grid solar PV system with net metering; and (v) assess the potential for waste to energy.(WE) and analyze the possibility of WE programs.

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Component IV: Analysis of Bioenergy Alternatives: (i) a preliminary assessment of a sugar cane biofuel project based on existing information and field work, wil be performed; (ii) if results of (i) are favorable this component would (a) support the preparation of a social, economic, technical and environmental assessment for Barbados to produce sustainable bioenergy in the form of liquid and gaseous biofuel and electricity (cogeneration from byproducts), in order to substitute part of the gasoline imports and provide power to the grid; and (b) assess the technical/scientific capacities to produce reliable feedstocks to achieve a competitive bioenergy industry. These studies will take into consideration sustainability standards for biofuels based on the criteria of the Roundtable on Sustainable Biofuels and the Inter-American Development Bank (IDB) Biofuels Sustainability Scorecard. In the event that the outcome of (i) is unfavorable the funds will be reallocated across components II and III. Component V: Dissemination of finding. (i) The TC will finance at least one workshop to validate and disseminate the findings of this TC, as well as several thematic meetings to discuss the progress and findings of the TC activities with interested parties. IV. COST AND FINANCING

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The cost of this TC to be financed with funds of the SECCI is estimated at US$1,000,000. The program will also include a local counterpart funding for approximately US$435,000: Table IV-I Summary Cost (in US$)
Component Financing SECCI Local Total Funding

Component I - Preparation of the Sustainable Energy Framework and capacity building Component II - Policy Support for Energy Efficiency Component III Analysis and Policy Support for Renewable Energy Component IV - Analysis of Bioenergy Alternatives Component V Dissemination of Findings Supervision of the project Monitoring and Audits Contingencies TOTAL

170,000 226,000 254,000 200,000 25,000 105,000 15,000 5,000 1,000,000 69.7% 435,000 30.3% 240,000 195,000

170,000 466,000 465,000 200,000 25,000 105,000 15,000 5,000 1,435,000 100%

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V. 5.1

EXECUTING AGENCY AND MECHANISM

Executing Agency: The IDB through INE/ENE will be the Executing Agency (EA). The GoB formally requested that the Bank be the EA because this would: (i) expedite the process of selection and contracting of consulting services and the procurement of goods and works within the 18 month duration of the TC; and (ii); in past operations the GoB has requested the Bank to carry out the processes of selecting and contracting consulting services, since GoBs institutional capacity does not allow to take swift action towards the formulation of a sustainable energy framework. The Bank will work in close coordination during the execution of this TC along with all the beneficiary entities, in particular the MFIE. Executing mechanism: A project manager (PM) will be hired to support the EA on the technical oversight and administrative supervision of the project in situ. This consultant will support: (i) the preparation of Terms of Reference and technical support for the selection of consulting firms (ii) the review of products prepared by the consulting firms (iii) the coordination among the GoB energy related entities, MFIE, IDB and the consulting firms. The PM will also prepare the Annual Operating Plan (AOP), which is an instrument to assist the Bank in the execution and supervision of this TC. The PM will have responsibility for the delivery of the anticipated results outlined in the AOP. Execution and disbursement period: The execution period will be 18 months and the disbursement period will be 24 months. Procurement and program implementation readiness: The selection and hiring of the consultant/consulting firms and the procurement of goods for the development of the activities comprised by this TC will be carried out in accordance with Banks policies and procedures (GN-2349-7 and GN-2350-7).

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VI. MONITORING AND EVALUATION 6.1 Monitoring: The monitoring responsibility during the execution of this TC will reside on INE/ENE, while the IDBs Country Office in Barbados (CCB/CBA) will provide additional technical and operational support. Technical and basic responsibility: The work of the consulting firms and the individual consultant, and their compliance with the Terms of Reference for this project will be monitored by INE/ENE in close coordination with MFIE. Progress and final reports: The terms of reference of each activity for which a consulting service is hired will specify the progress and final reports to be presented to the Bank, MFIE and CCB/CBA. The final reports will be approved

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-7by the Bank in consultation with MFIE. VII. PROGRAM BENEFITS AND RISKS 7.1 Benefits and beneficiaries: This TC contributes to the sustainable development process of Barbados, mainly in two areas, the energy sector and the environment, with an overall positive effect on the economy. On the energy sector side, it helps diversify the energy matrix introducing an appropriate regulatory and technical framework for the adoption of RE and EE practices that foster the efficient use of energy resources. The adoption of RE also improves the energy security profile of the country by augmenting the number of sources used for energy supply, but most importantly by introducing the use of local and abundant resources like wind, solar and bioenergy. On the environmental side, the use of RE and EE practices will help reduce greenhouse gas emissions from such activities like power generation, transportation and appliance and facilities operation. At the same time some revenues could be earned from emission reduction transactions in the international carbon finance markets. The net impact of these measures on the economy will be reflected on the energy bill that is highly dependant on oil and gas international prices and fluctuating supply. The beneficiaries are set to be the Ministry of Finance, Economic Affairs and Energy, Ministry of Agriculture and Rural Development, Ministry of Family, Youth Affairs, Sports and Environment (MFYSE); Ministry of Tourism (MT); Barbados Agriculture Management Company; and West Indies Central Sugar Cane Breeding Station. Risks: The major risk for this TC is that if oil prices drop significantly the initiative loses momentum and the efforts to switch to sustainable energy are abandoned. However, GoB considers sustainable energy as way to hedge against volatile oil prices. Furthermore, the government has shown a strong commitment with the implementation and promotion of the activities described in this project. The adoption of RE, EE and BE are among the top priorities of the central government and have been sufficiently addressed and their importance underscored in the countrys energy policy. The project team, together with GoB, is mitigating this risk with the parallel application to GEF funds for the financing of pilot projects that provide supporting quantitative and qualitative data that gives grounds to the implementation of a wider and more ambitious program. It is the teams and the governments believe that the pilot projects will help make a stronger case for the economic and environmental benefits of the adoption of RE, EE and BE. There is a coordination risk since the project has several parties and beneficiaries and the communication channels could intertwine at some point. This risk is mitigated with the hiring of a PM who will centralize the communication among agencies, all the procurement processes and the influx of information, both from the consulting firms and the government agencies. The fiduciary risk, which resides on the capability of MFIE to hire the consulting services under IDBs

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-8policies, is also mitigated with the presence of a PM. The PM will either have previous experience and familiarity with Banks policies or will be trained for that matter. In any case, MFIE and the PM will have permanent support from the project team, the country office and the procurement specialist in charge of Barbados. 7.5 As an additional measure to mitigate the afore-mentioned risks the project team in coordination with the EA will have a mid term review to identify the issues, if any, affecting the execution of the TC or the ones that may suggest a shift in the orientation of the TC activities. VIII. ENVIRONMENTAL AND SOCIAL REVIEW 8.1 This TC was reviewed by the Environmental and Social Impact Review (ESR) Committee on July 28, 2008. No negative environmental or social effects were identified and the TC has been classified as a C according to the Safeguard Classification Tool. There are no foreseeable issues or impacts (environmental or social) to the preparation of the Plan of Operation or the execution of this TC. This TC will help to identify the possible impacts from an environmental, social and economical perspective. Considering its nature, this CT is not expected to generate negative environmental or social impacts. Actually, this TC will have positive environmental impacts since it seeks to promote the use of RE and EE practices. This course of action will translate into fewer greenhouse gas emissions over time and an efficient use of energy resources. This TC will take special care to identify projects that are environmentally sound (i.e., projects that do not foment deforestation or competition with land that is currently used for cultivation of food crops) and will comply with the environmental and safeguards compliance (OP-703) of the Bank. In the case of the BE analysis the contracted studies will have to abide by the criteria of the Roundtable on Sustainable Biofuels and the Inter-American Development Bank (IDB) Biofuels Sustainability Scorecard. In this sense, this initiative will help to detect the land that would be available for biofuel production without resulting deforestation or negative impacts related to security of food supply

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