Methodological and Technological issues in Technology Transfer

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Case Study 24

Financing Micro-hydro Energy Dissemination in Perú
Alfonso Carrasco, ITDG Peru
Teodoro Sanchez, ITDG Peru

Keywords: Peru, micro-hydro, financial mechanisms, dissemination, clean energy, replication potential

This case study describes an experience of dissemination of micro-hydro plants in isolated rural areas in Peru, based on the provision of soft loans plus technical assistance. A total of 15 plants are being installed and a Revolving Fund has been established. The micro-hydro plants replace fossil fuel-based energy generation, and have an expected life of 25 years.


Only about 5 % of the rural population in Perú has access to electricity. For the remaining 95 % the main alternative -if available- is the use of diesel stand-alone generators that are usually unreliable and very dirty. There are no financial mechanisms available to facilitate or promote the investment in small renewable energy schemes in the rural areas. Local technology on small hydro energy has also had a poor reputation and considered to be expensive. ITDG, an international technical NGO, has been promoting the dissemination of micro-hydro energy in Peru during the last 20 years. For this purpose an integrated approach has been developed, including technology development, training, pilot projects, research on institutional issues and advocacy work. One of the elements of this approach was the creation, with support of the IDB, of a financial mechanism to facilitate access to funds for small micro-hydro plants to the rural population.

The IDB provided US$ 520,000 as a loan to ITDG. This loan had two components:

  1. US$ 400,000 to be allocated as small credits up to US$ 30,000 at an interest rate of 8 % annually and maximum 5 years payback time. Clients should be rural entrepreneurs or local institutions (municipalities, communities, cooperatives)
  2. US$ 120,000 as a grant, for the provision of technical support, including promotion, technical and financial assistance, beneficiary organisation and implementation.

A small local consultant group was hired for financial studies, preparation of credit instruments, control of expenditures during the implementation time and recovery of loans. Technical assistance (introducing low-cost technologies), promotion of credits and training of the users were the responsibility of ITDG.

15 small hydro plants were installed by late 1997, allocating US$ 465,000. In addition to this sum, US$ 1.4 million co-funding has been raised for the same purpose from various sources, the most important ones being the regional government and the national poverty-focused programme FONCODES. Loans repayment is going well with an average delay of 2.5%. The 15 plants provide access to electricity for about 1,800 people; lead to the creation of small industries such as carpentry, welding, battery charging; and improve basic services such as light for evening education, health posts, communication services, etc. The project provided an alternative to the diesel option, reducing pollution and greenhouse gas emissions. Total installed power of 602 kW will be added to the national power capacity. The expected life of each plant is 25 years. Currently this is the only existing scheme of this type in Perú.

Lessons Learned
It is possible to disseminate the option of clean micro-hydro electricity for isolated rural populations using appropriately designed financial mechanisms. A combination of credit, subsidised promotion and technical assistance seems necessary. Also, very close contact with the population in order to promote and market the scheme is required. Significant cost reduction can be obtained using less expensive but reliable technology.

Alternatives for Rural Electrification. An analysis of the experience gained in the project Credit for Micro-hydro plants ITD-ITDG. 1998: Alfonso Carrasco. Dic.
Energía para el Area Rural del Peru. 1998: ITDG Peru.

Author: Teodoro SanchezInstitution: ITDG-PeruAv. Jorge Chavez 275Miraflores, Lima,PeruFax : +(511) 4466621
Phone : (511) 4475127, 4467324

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