Power Balance: Transitioning Solomon Islands from Diesel to Majority Renewable Energy by 2022


“Everything in Solomons relies on fuel,” says Toata.

 

For Toata Molea, meeting the electricity costs of running his business in the Pacific Island nation of Solomon Islands is an increasingly difficult burden.

As the Managing Director of Didao Service Station and the man his family rely on for income and support, over-reliance on expensive, imported diesel fuel is making the future of his business extremely uncertain.

“The best thing about this job is that you serve people,” he says. “When you have people smiling, and they get what they wanted, that is a pleasing thing. But if the price of electricity doesn’t change, I have no choice; I will have to close.”

Toata Molea is not alone. Solomon Islanders pay among the highest prices in the world for electricity. Though the country has the third largest population in the Pacific, the rate of access to electricity is among the lowest, with only 16 per cent of the population connected.

Comprising 997 islands – of which about 90 are inhabited – and scattered over 1.3 million square kilometres of ocean, the country’s isolation, expansiveness, and lack of resources mean that it is almost 100 percent reliant on imported diesel for its energy needs.

Now there’s good news for Toata and the people of Solomon Islands with a significant milestone being reached in a project that will transform the energy consumption of the nation.

It was the signing of a series of key agreements for the Tina River hydropower project, which aims to dramatically increase the amount of renewable energy in the Honiara national grid by nearly 70 percent while reducing reliance on expensive diesel power.

Years in the Making

The agreements signed come after some 10 years of preparatory work and three years of negotiations between the Solomon Islands Government including the state-owned power utility Solomon Power and the private developers of the project, Korea Water Resources Corporation (K-water) and Hyundai Engineering Corporation (HEC).

IFC, the International Finance Corporation, a member of the World Bank Group, is transaction adviser to the government of Solomon Islands.

The World Bank Group has supported the Tina River Hydropower Project since it was first considered by the Solomon Islands Government in 2006, including IFC’s transaction advisory support during project preparation and commercial negotiations. The Multilateral Investment Guarantee Agency (MIGA), also a member of the World Bank Group, is expected to provide equity political risk insurance cover to the sponsors.

“Today’s signing represents the culmination of considerable work by many parties who have supported the Solomon Islands Government in preparing this significant project”, said Solomon Islands Minister for Finance and Treasury, the Hon. Manasseh Sogavare. “This is an important day in the history of renewable energy in the country and we look forward to the economic and social benefits Tina River Hydropower Project will bring to the people of Solomon Islands.”

Powering a Public Private Partnership

“This is a significant move, as the Tina River hydropower project is Solomon Island’s first large-scale infrastructure project to be developed as a public-private partnership (PPP) in Solomon Islands, “said Thomas Jacobs, IFC’s Country Manager for the Pacific. 

The project is the first utility-scale hydropower plant and will also be the first privately-invested build-own-operate-transfer (BOOT) project in Solomon Islands.

The benefits of such an investment will not only make electricity more affordable, but also more widely accessible.

And it will also pave the way for the country to exceed by two and a half times its 2025 greenhouse gas emissions reduction target.

“This project will lead to a shift from nearly 100 percent diesel to majority renewable energy for the people of Solomon Islands,” said Milissa Day, IFC’s Representative for Solomon Islands.  “This dramatic transition from diesel to renewable energy and from public to private investment shows what is possible for small island nations seeking lower energy costs and with a commitment to renewable energy, which is vital for this region as it adapts to the challenges of climate change.”

“Since this project was first proposed, all parties have remained focused on delivering cheaper and more reliable power to Solomon Islanders through renewable energy,” said Guido Rurangwa, the World Bank’s Country Representative in Solomon Islands. “We congratulate the Solomon Islands Government and Solomon Power on reaching this important milestone that will ultimately improve the lives of thousands of Solomon Islands families, businesses and the country as a whole.”

Once completed, the Tina River hydropower project will bring much needed relief for people like Toata, who rely on affordable electricity to run their business, build local workforces, contribute to the economy and provide for their family.

“I decided to start this business for the family,” he said. “I come from Solomon’s where extended families are very, very big… we nourish that; we cherish that. I’ve got nine brothers and one sister, and I’m the only one highly educated. So I am going to try and help them. That’s why I keep hanging on to this business.”

With these agreements in place and funding from multiple donors, it is expected that Solomon Islands will have transitioned from a 3% share of renewable energy (hydro and solar) in 2017 to 67% when the project is completed.

The series of Agreements

The agreements signed include the Power Purchase Agreement between Solomon Power and Tina Hydropower Limited, a partnership between K-water and HEC, and the Government Guarantee Agreement and Implementation Agreement between the Solomon Islands Government and Tina Hydropower Limited. 

Agreements were also signed between the Solomon Islands Government and the World Bank for US$33.6 million in support to the project from the International Development Association, the World Bank’s fund for the world’s most in need countries. The Australian Government is providing an additional US$12.7 million in project funding as part of the Australia Pacific Islands Partnership (APIP). Australia will support the construction of the access road to the project site and technical assistance for the Solomon Islands Government to manage project implementation.

Over the past 10 years, the Australian Government has provided AU$10 million to support project preparations through the APIP and Pacific Regional Infrastructure Facility Trust Funds. Other financing sources that supported the project preparation include the Global Infrastructure Facility and the Energy Sector Management Assistance Program.

In addition to the World Bank Group and Australian Government, financial support has been confirmed by the Abu Dhabi Fund for Development/International Renewable Energy Agency, the Green Climate Fund, and the Economic Development Cooperation Fund of Korea.

IFC’s work in Solomon Islands is guided by the Pacific Partnership. Australia, New Zealand, and IFC are working together through the Pacific Partnership to stimulate private sector investment and reduce poverty in the Pacific. As well as the APIP, the project development has been supported by The Infrastructure Development Collaboration Partnership Fund—funded by Austria, the Netherlands, Sweden and the UK—which focuses on facilitating private investment in infrastructure projects.