Evaluation Criteria of Project Feasibility for Inclusive Growth and

Transcription

Evaluation Criteria of Project Feasibility for Inclusive Growth and
Poverty Alleviation in Indonesia
By
Econ Team
Yayan Satyakti, Ph.D.
Dr. Mokhamad Ridwansyah
Millennium Challenge Account – Indonesia
2015
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Table of Content
Chapter 1 Introduction ........................................................................................................... 5
1. Background ...................................................................................................................................... 5
1.2. Objective ........................................................................................................................................ 9
1.3. Scope of Report ........................................................................................................................... 9
1.4. Methods ...................................................................................................................................... 9
1.5. Structure of Report ................................................................................................................. 10
Chapter 2 Ecosystem Services, Poverty Alleviation and Inclusive Growth ....... 12
2.1. Environmental Degradation and Poverty Alleviation ................................................ 12
2.2. Rural Households, Poverty and Ecosystem Services .................................................. 16
2.3. Renewable Energy and Poverty Alleviation .................................................................. 18
2.4. Project Context of Ecosystem Services ............................................................................ 21
2.5. Inclusive Growth in Project Context ................................................................................. 26
Chapter 3 Measuring Renewable Energy Projects toward Inclusive Growth... 27
3.1. Renewable Energy Project related to reducing poverty ........................................... 28
3.2. Financing Renewable Energy Project............................................................................... 29
3.3. Risk Identification in RES ..................................................................................................... 31
Chapter 4 Measuring Sustainable Agriculture and Agroforestry/ Forestry
Project........................................................................................................................................ 35
4.1. Project Objective and Outcomes ........................................................................................ 35
4.2. Financing Project Objectives ............................................................................................... 37
4.3. Risk Identification ................................................................................................................... 40
Chapter 5 Protection of Natural Resources Project .................................................. 41
5.1. Project Objectives.................................................................................................................... 43
5.2. Financial Aspects of Water Catchment Area .................................................................. 47
Chapter 6 Ecotourism: Towards Sustainable Development ................................... 50
5.1. Project objective ...................................................................................................................... 52
5.2. Financial Analysis.................................................................................................................... 53
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List of Table
Table 1: The Impact of Human Activity on Ecosystem Services in Belawan (19882000) and Supa Watershed (1989-2001)......................................................................... 14
Table 2. Implications on Resilience Natural, Resilience-socio-economic ...................... 14
Table 3. Linking policies to pathways out of poverty ............................................................ 17
Table 4. Potential effects of improved energy services in poverty alleviation ............ 19
Table 5. Comparison of different renewable energy technologies for rural
electrification ............................................................................................................................... 20
Table 6. Function, goods and services of natural and semi-natural ecosystems ........ 22
Table 7. Differences between Renewable Energy Soruce (RES) and Conventional
Energy (CE) ................................................................................................................................... 27
Table 8. Renewable Energy Projects Components for Financial Viable ......................... 29
Table 9. Investment Cost for Renewable Energy Projects ................................................... 30
Table 10. Risk Analysis of Renewable Energy Projects......................................................... 31
Table 11. Political Measurement Risk in RES ........................................................................... 31
Table 12. Economic Risk Measures in RES................................................................................. 32
Table 13. Social Risks Measures..................................................................................................... 33
Table 14. Technical Risk Measures ............................................................................................... 34
Table 15. Indicators of Environmental Sustainability of Agriculture .............................. 35
Table 16. Types of Verifiers ............................................................................................................. 37
Table 17. Estimating Additionality Benefit and Cost ............................................................. 38
Table 18. Benefit and Costs Analysis of Financial Analysis woodlowt as compared to
maize allow system Tabora District, Tanzani (US$/ha).............................................. 38
Table 19. Coefficient and Prices Assumption ............................................................................ 39
Table 20. Sensitivity analysis of the results of the financial analysis .............................. 40
Table 21. Additionality and project aims................................................................................... 43
Table 22. Assessment of Degradation Degrees ........................................................................ 43
Table 23. Framework for appraisal project in water catchment area ............................ 45
Table 24: Impact assessment by component ............................................................................ 45
Table 25. Outcomes generates outputs ....................................................................................... 46
Table 26: Spreadsheets Sample for Water catchments Project ......................................... 48
Table 27: Spreadsheets Sample for Water catchments Project.. (contd) ....................... 49
Table 28. Spreadsheets of Ecotourism Project ........................................................................ 55
Table 29. Spreadsheets of Ecotourism Project ........................................................................ 56
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List of Figures
Figure 1 : Gross Domestic Product (GDP) Growth (In Percent), Total Poor
Population (In Million), and Gini Ration (in Percent) In Indonesia Period 2002 2014 .................................................................................................................................................... 6
Figure 2 : GDP/ Capita (Local Currency Unit) and Carbon Dioxide Emission (in kilo
tones) during Period 1990 – 2011.......................................................................................... 7
Figure 3: Growth Diagnostic Framework Analysis for Assessing Inclusive Economic
Growth ............................................................................................................................................ 10
Figure 4. Positive and Negative Poverty-Environment Linkages...................................... 13
Figure 5. Conceptual Framework of linkage between Ecosystem Services and
Poverty Alleviation .................................................................................................................... 15
Figure 6. Household decision to improve resource allocation ........................................... 16
Figure 7. Possible relationship between production areas (P) and service benefit
areas (B) ......................................................................................................................................... 21
Figure 8. Three Different Projects of Environmental Services.......................................... 25
Figure 9. Measuring Inclusive Growth From the Project. .................................................... 26
Figure 10: Illustration of the impact of flood hazard on economic activity .................. 42
Figure 11. Multiple spreadsheet pattern in water catchment project ............................ 44
Figure 12. Relationship between factors in sustainable tourism...................................... 51
Figure 13. Simpson Diversity Index Additionality .................................................................. 53
Figure 14. Improving of Labor Creation in Local Area .......................................................... 54
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Chapter 1 Introduction
1. Background
Since 2011 Indonesia and United States has signed Millennium Challenge Compact
to reduce poverty by promoting economic growth through three projects: The Green
Prosperity Project, the Community based Nutrition to Prevent Stunting Project and
the Procurement Modernization Project. In terms of project funding, The Green
Prosperity (henceforth called as GP) has the largest project funding with 55.33% of
total project. The project focused on addressing critical development priorities to
increase access to clean and reliable energy in rural areas and improving
stewardship of natural assets. The GP consist of sub project areas such as
Participatory Land Use Planning Activity (7.53% of total GP), Technical Assistance
and Oversight Activity (15.06% of total GP), GP Facility Activity (72.89% of total
GP) and Green Knowledge Activity (4.21% of total GP).
Total investment project which will deliver by GP scheme funded $332.5 million in
targeted district. The objective of this project focus on stimulating and generate
multiplier effect through concrete assessment by conducting Economic Rate of
Return evaluation. Therefore, the GP will concentrate in provinces and district that
have high potential for achieving poverty alleviation and environmental objectives.
According to Anderson et al., (2013), inclusive economic growth affected by
entrepreneurship and investment, this indicator shaped by two major indicators
which should be assessed carefully by return to economic activity and cost of
finance. Lowered return to economic activity led by two major causes such as
diminishing social return and low appropriability by government failures, macro
risk and micro risk. The social return especially caused by declining of natural
capital, poor human capital as well as poor infrastructure. From this standpoint, it
seems GP may contributes for supporting Indonesia’s economic and environmental
priorities by founding new and lasting model for developing, financing and
implementing the project at the local level. The project will trigger greater private
sector to accommodate sustainable development principles for local
entrepreneurship by expanding opportunities in renewable energy investment and
innovative land use practices.
If we refer to recent data, Indonesia Statistical Agency published poverty macro
indicators as depicted in Figure 1. Although poor population are declining over time,
and economic growth grow steady around 4-6%, Indonesia still has 28.17 million
peoples are poor people with lives less than $2/day. On the other hand, the
inequality increasing from 33% in 2002 towards 42% in 2014. This means that
economically Indonesian growth benefiting to rich citizen rather than poor citizen.
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Figure 1 : Gross Domestic Product (GDP) Growth (In Percent), Total Poor
Population (In Million), and Gini Ration (in Percent) In Indonesia Period 2002 2014
7.00%
6.00%
45.00
38.40
6.35%
39.30
37.30
5.00%
4.50%
36.20
4.78%
37.17
5.69%
35.10 5.50%
6.49%
6.22%
6.01%
6.26%
40.00
5.73%
35.00
34.96
32.53
5.03%
4.63%
31.03
5.06%
30.12
29.25
28.17
30.00
28.28
4.00%
25.00
3.00%
20.00
15.00
2.00%
10.00
1.00%
5.00
0.00%
0.00
2002
2003
2004
2005
2006
GDP Growth
2007
2008
2009
Poverty Total (Mil)
2010
2011
2012
2013
2014
Gini Ratio (%)
Source: Indonesia Statistical Agency, 2014.
Despite improving economic growth, Indonesia’s economic development have been
associated with impressive rate of devastating its environment. Increasing rate of
deforestation which led by escalating carbon emission. Figure 2 shows these facts
that increasing of economic growth inextricably to its environmental degradation.
How does it linked between economic growth, environment and poverty in
particular of inclusive growth? Environmental quality engaging with better
ecosystem services which provided through better preserving of ecosystem such as
forest, and other activities attributes to sustainable agriculture practices. According
to Farley & Costanza (2010) ecosystem services benefits people, if ecosystem is
utilized to produce human well beings. The possible impact of poverty and
ecosystem services is improving payment of ecosystem services by improving
productivity of land both in terms of improving soils quality and other efficiency
measurement such as improving their preserving area likewise forest conservation
or the participant of main groups such as upstream providers or downstream
services users Pagiola et al., (2005).
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Figure 2 : GDP/ Capita (Local Currency Unit) and Carbon Dioxide Emission (in kilo
tones) during Period 1990 – 2011.
600,000.00
35,000,000.00
30,000,000.00
500,000.00
25,000,000.00
400,000.00
20,000,000.00
300,000.00
15,000,000.00
200,000.00
10,000,000.00
100,000.00
5,000,000.00
-
-
CO2 emissions (kt)
GDP per capita (constant LCU)
Source: Worldbank Development Indicators, 2015 1.
Furthermore, another issue has been raised in Indonesia is energy. Its clearly stated
in Law No. 30/2007 about Energy, energy security one of prominent issue in
Indonesia to ensure economic activity and national security. Since 2004, Indonesia
has been net importer country that causes energy security as importance issues
henreafter (Satyakti, 2014). Gunningham, (2013) introduces three issues that
Indonesia should be addresses called as energy trilemma. Energy trilemma consist
of energy security, climate change mitigation and energy poverty. The energy
security agenda defined as provides reliable and adequate supply of energy at
reasonable prices Kruyt et al. (2009), or another words self reliance of energy
supply by utilizing existing energy potential. APERC (2007) refine definition of
energy security of supply by (1) the availability of fuel reserve both domestic and
external supply; (2) the ability of a an economy to provide energy demand; (3)
improving energy resource diversification and energy supply diversification; (4)
accessibility to fuel resource and related to energy infrastructure and distribution;
(5) resource acquisition. In order to achieve energy security issues and poverty
alleviation, Indonesian government has focused accessible energy at an affordable
price and mitigating energy poverty by improving local energy independency
through renewable energy initiatives.
Currently, electrification ratio in Indonesia as of 20142 has reached 81.70%, its
higher than in 2013 which is electrification ratio lowered by 78.06% percent. This
1
http://data.worldbank.org/country/indonesia#cp_wdi accessed on 23 August 2015.
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situation challenges by proximity problem where mostly of population scatter
around remote area and far from on grid electricity network. Another aspect, is
financial obstacles to develop electricity sector, this hurdle faces by every regional
government in Indonesia to develop infrastructure system to install additional
power plan capacity, transmission and distribution. Above of all this policy hindered
by uneconomically viable for electricity price due to heavily subsidizes of the
government on electricity prices that causes impeding of electricity investment
(Winoto et al., 2012). In order to resolve this problem through Electricity Law
No.30/2009 at article (4) the electricity development prioritized to improve rural
electrification in rural areas especially for poor people, underdeveloped areas and
remote areas to promote productivity in rural community, quality of education, and
literacy of information as well as self reliance of on grid system. Correspond to
Acceleration Electricity of Development Program those strategies will resolve by
renewables through allocating primary energy i.e. hydro by 11%, Geothermal by
34%, Coal by 40% and Gas 15% of 10.000 MW (Winoto et al., (2012) ,Kumara
(2009)). Apparently, this ambitious program rely on private sectors, the
government unable to finance the whole target and lack of procurement process3.
Concerning those circumstances, the GP project areas are well equipped for local
areas to promote growth development through improving ecosystem services that
proxies by sustainable land use and natural resources management and introducing
renewable energy in local area to improve better productivity and local energy
security. Another dimension that we should concern according to Anderson et al.,
(2013) is the channel of indicators towards obtaining return to economic activity
and cost of finance. From both of these aspects Economic Rate of Return (ERR) as a
tools to estimate return to economic activity and cost of finance are adequate
method to enhance and demonstrates how the projects promotes inclusive
economic growth as well as sustainable.
This report intend to explore various aspect by offsetting grey literatures to acquire
proper variables and indicators to estimate Economic Rate of Return (ERR)
especially in two broad areas of the GP project. What variables and assessment
method to measure cost and benefit for evaluation inclusive economic growth. We
reviewed various literature both theoretical and empirical finding to support
accurate variable for assessing ERR.
2 http://www.pln.co.id/wp-content/uploads/2012/01/Statistik-PLN-2014_for-website-10-Juni-
2015.pdf accessed on 23rd August 2015.
3 http://economy.okezone.com/read/2011/01/03/320/409659/proyek-listrik-10-000-mw-molor,
http://ekbis.sindonews.com/read/983067/34/proyek-percepatan-pembangkit-10-000-mwmangkrak-1427702134
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1.2. Objective
This report consist of three objectives as follows
1. Exploring and reviewing grey literatures to assess inclusive growth (sustainable
development and poverty alleviation) in renewable energy sector, sustainable
agriculture/ forestry sectors and ecotourism;
2. Economic model of those sectors on poverty alleviation;
3. Impact evaluation framework to build economic model for those sectors that
assessed towards increasing of benefit of project on poverty alleviation.
1.3. Scope of Report
This report focus on sectors with particular projects as the following areas
Project Types
Objectives
Renewable Energy Projects
Reliable electricity and fuel supply
Sustainable Agriculture and
Improving productivity of agriculture
Agroforestry Projects
along with best practices of sustainable
agriculture
Protection of Natural Resource Project
Improving ecosystem services through
Payment of Ecosystem Services
Ecotourism Projects
Payment ecosystem services
Integrated Projects
Productivity, Payment Ecosystem
Services, etc.
1.4.
Methods
This report conducted by literature analysis with growth diagnostic framework.
This logical framework we assessed according to scope of areas and assessed for
each factor linked with growth diagnostic framework. As depicted in Figure 3.
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Figure 3: Growth Diagnostic Framework Analysis for Assessing Inclusive Economic
Growth
Source: Anderson et al., (2013)
1.5. Structure of Report
The structure of report comprises of the followings sections
Chapter 1. In first chapter we introduce some concept and framework how the
various project to be implemented for inclusive growth assessment.
Chapter 2. In second Chapter we defined and investigates the linkage between
environmental degradation, inclusive growth and poverty alleviation. In this chapter
the linkage between environmental degradation towards poverty alleviation. How
the channel between environment and poverty alleviation interlink and promotes as
inclusive growth. Various theories and concrete channel has been introduces along
with empirical evidence.
Chapter 3. In this Chapter we investigates the project aims of renewable project
and how to interlink between outcomes benefit and financial analysis as a
benchmark to evaluate renewable energy project whether economic viable or not.
The project aims still concern how the renewable project promote inclusive growth
through renewable energy project.
Chapter 4. In this chapter we measured the project which implement sustainable
agriculture management and how the parameter capable to measure agriculture
productivity wlong with improving agriculture sustainability. Various parameters
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and indicators demonstrates that project be able to improve benefit for the farmers
and improving poverty alleviation.
Chapter 5. Chapter fifth elucidate the linkage between project output of agriculture
or agroforestry to promote preserving water catchment area. This chapter provide
output on how the agroforestry project capable to improve poverty alleviation and
reducing land degradation in landscape area where the area interlinked through
upstream and downstream that stimulate impact on the stream landscape area.
Chapter 6. Assessed the linkage between ecotourism project and diversity index as
an output to preserve environment in tourism site. The objective of this project is to
produce financial analysis between ecotourism and crucial indicators as sustainable
tourism.
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Chapter 2 Ecosystem Services, Poverty Alleviation and Inclusive
Growth
This chapter attempts to link ecosystem services as an impact of environmental
degradation that causes to poverty alleviation and how these dimensions are
intertwined with one another then resolved through inclusive economic growth. In
this chapter we distinguished the channel approaches of two major area of the
project. The first one is ecosystem services as we noted in Chapter 1 mostly of the
projects are conducted by inclusive growth mechanism through improving the
quality of environmental management in order to reduce environmental
degradation, since other project focus on inclusive growth through energy
utilization by emphasizing energy independency and improving local economic
productivity. At the first glance we elucidate the linkage of ecosystem services and
poverty alleviation by channel through payment ecosystem services (PES). The PES
works through offsetting benefit and cost of ecosystem service that lead
productivity of households become poverty increasing or poverty reduction.
Afterwards is renewable energy project, which is this type of project we need to
clarify in which channel the renewable energy project affect on household
productivity and energy self reliance.
2.1. Environmental Degradation and Poverty Alleviation
According to World Bank (2002), natural resource are prominent for substantial
production activities. Poor rural households heavily rely on their incomes from
natural resource services. In rural areas, rural people greater dependence on
natural services to earn benefit such as generation revenue and employment by
utilizing theirs natural resources. In addition, Sunderlin et al., (2005) defined a
linkage between natural resource and poverty alleviation (i.e. forest resources) as
fulfillment of that natural resource to meet households subsistence needs, safety
nets function and gap filter for utilizing its service in emergency period of low
income. Therefore, the reducing of natural services may have adverse effect for the
poor people to utilizing the natural resources hence their livelihood decreases in
terms of assets, investment, income and well being accordingly. These effects
altering the rural people vis-à-vis improving poverty causes or improving poverty
reduction vice versa. Other authors suggested the linkage between PovertyEnvironment depicted into causal loop diagram in Figure 1. below.
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Figure 4. Positive and Negative Poverty-Environment Linkages
Environmental preservation
Win-Lose
Environmental management that
excludes local communities (e.g.
lack of benefit-sharing, dislocation
of communities)
Win-Win
Sustainable livelihoods (e.g.
sustainable agriculture, forestry,
fisheries, ecosystem, management,
adaptation to climate change)
Lose-lose
Lack of inadequate environmental
management negatively affecting
the poor (e.g. lack of adaptation to
climate change, poor
environmental health conditions)
Lose-Win
Short-term livelihoods (e.g.
overgrazing, overfishing,
deforestation)
Poverty reduction
Source: De Coninck (2009)
From this figure we have figure out linkages by four quadrants dimension as winloses loop. The win-lose quadrant describes improving environmental preservation
vs poverty increasing where environmental preservation disregard community
participation which cause dislocation of communities in the ecosystem. These
linkages imply to another quadrat which is the best counterpart is win-win
quadrant. This quadrant portray ideal relationship between environmental
preservation and poverty reduction by engaging sustainable livelihoods through
improving ecosystem services by valuing the ecosystem as ecological, sociocultural
and economic value (Groot et al., 2002). In fact, WRI et al. (2005) noted that
ecosystem services generates environmental income for rural people. Where rural
poor heavily dependence on ecosystem livelihoods, declining of ecosystem reduce
their environmental income which is the poor vulnerable to ecosystem degradation
(J. a. Fisher et al., 2014). In recent research Suneetha et al., (2011) investigated
ecosystem change and human well being in Indonesia. The study were undertaken
in Bawan and Supa watershed by over period 1989 – 2001. The impact driven by
cropland activity that generated losses in terms of forest resources, flood frequency,
soil quality index and changes of wellbeing on ecosystem.
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Table 1: The Impact of Human Activity on Ecosystem Services in Belawan (19882000) and Supa Watershed (1989-2001).
Parameters
Water
Dense forest
Sparse forest
Cropland
Farmland
Grassland
Total
Flood Frequency
Soil Quality Index
Food Security
Fuel Efficiency
Access to Clean Water
Source: Suneetha et al. (2011)
Loss in
Bawan (%)
Loss in
Supa (%)
-0.54
-10.17
-12.17
-7.83
0.00
-7.93
-5.08
0.00
-19.61
-5.64
-38.26
0
-31.21
200
-54
Decreases
Decreases
Severe
They conclude that those figures led to fostering on well being through
demonstrates the implication of declining in ecosystem services as in Table 3.2. This
table confirmed that human depend on healthy ecosystem as most essential services
to be provided for the people, otherwise severely due to misplaced policies and
human action rendering various services of its ecosystem and fostering declining of
human well being.
Table 2. Implications on Resilience Natural, Resilience-socio-economic
Resiliencenatural
Positive
Resilience-socioeconomic
Positive
Negative
Positive
Positive
Negative
Negative
Negative
Implications
High resilience of natural and socio economic
parameters indicating high adaptive capacity
Exploitation of natural resource although social
systems have developed capacities to adapt to
disturbances
Implies possible underutilization of natural
systems
Very low development of adaptive capacities of
the population
Capacities of both socio-economic and natural
system to adapt and regain homeostasis in the
even of a disturbances severely hampered.
Source: Suneetha et al. (2011)
In macro context WRI et al., (2005) reported that Indonesia suffer the world’s
largest annual loss of forest cover more than 43 million hectares have been
degraded with annual deforestation rate 2.8 million hectares from 1998 to 2002.
One of major contributors is trade activity of timber export which contributed by
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70% through illegal logging. It’s cost US$3.7 billion lost revenue of government in
trade activity in particular of this sector. Besides that factor, palm oil activities
responsible to increase of land use conversion of forest into agriculture crops that
causes forest fires and burning as stated by Page et al. (2002). Nevertheless,
environmental degradation activities foster declining of ecosystem services leads to
increasing of poverty.
How to resolve the problem between people and improving poverty alleviation
through ecosystem services? Fisher et al., (2014) describe conceptual framework
the linkage of ecosystem services and poverty alleviation. They distinguished
poverty consist of poverty reduction and poverty prevention.
Figure 5. Conceptual Framework of linkage between Ecosystem Services and
Poverty Alleviation
Source: Fisher et al., (2014)
Poverty reduction caused by three aspect that influence to natural resources
management i.e. access and control of natural resources as endowments,
entitlements, capitals, people preferences and means other than ecosystem services.
These dimensions determined ecosystem services as access and control of people on
ecosystem services. The access consist of behavior of people to get access and
control into ecosystem services as regulation, cultural and provisioning of
ecosystem services utilization. Through these channels people benefitting
ecosystem services as cash from commodity services to regain environmental
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income for the community. This access comprises by two categories as monetary
benefits versus direct services benefit. Direct services benefits define as services
provide by ecosystem with non monetary unit. This direct services is pertinent
debatable on how the value of ecosystem services benefit with appropriate
measurement. In particular countries such as Cameroon, Indonesia, Malaysia and
Papua New Guinea access to forested land tends to formalized by governance
regimes. The government secured ecosystem services to enable group accessing to
ecosystem services as well as monetary benefits that related to poverty (Fisher et
al., 2014).
2.2. Rural Households, Poverty and Ecosystem Services
In this section we defined in more specific literature review on how project
investment as intermediary channel related to improving poverty alleviation. In
previous section we portrayed direct channel on poor people well-being. Actually,
there is a channel has been missed to strengthen of poverty environment links.
What we missed in this issue is we should consider that poverty alleviation as
sustainable process towards escaping of poverty. Reardon & Vosti, (1995) illustrates
on how households allocate their assets.
Figure 6. Household decision to improve resource allocation
Source: Reardon & Vosti (1995)
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That figure depicts that rural households diversify in income and assets, the
diversity stem from difference of managing risk and assets which led them into
poverty. Increasing of this risk closed related to fragile areas as well as limiting
access to manage their assets. When the poor engage with small assets they will rely
on open access assets as a complement to fulfill their consumption. This assets
management makes the rural poor more vulnerable than the rich one. Along with
decreasing of their assets because of limiting their access to formal labor market or
non formal labor market, they will greater reliance on natural livelihood activities.
Once the nature resource decline, natural services diminishes as well, the effect
ecosystem pressure will seriously impact on the poor rather than the rich.
Allude to this problem, investment strategies to enhance the environment and
investment in on-farm and off-farm activity affect crop choice and intensification of
agricultural activity. Basic fundamental towards improving poor people assets by
utilizing their assets and payment ecosystem services (PES) as compensation for the
poor people to improve their investment. This investment require input such as
natural resource maintenance or enhancement to reduce vulnerability of ecosystem
risk and willingness to improve their innovation to utilized their assets to improve
their income and entrance into labor market.
In 2006, The World Bank (2006) conducted the research to proposed policy
framework to escape from the poverty as pathways out of poverty as depicts in
Table 3.3. The linking policies of pathways comprises by the following steps:
 Maintaining a stable macroeconomy through low inflation, competitive
exchange rate and low prices for staple foods;
 Investing in the capabilities of the poor by agricultural extension and
improving education, training and information;
 Connecting the poor to opportunities by improving infrastructures thorugh
rural roads, labor market and access to financing institution.
Table 3. Linking policies to pathways out of poverty
Policies
Maintaining a stable
macroeconomy
Rural
Farm
Rural agricultural poor
Urban
Non-farm
Rural Non-Farm Poor
Urban Non-farm Poor
Low inflation
Competitive exchange rate
Low price for staple foods
Agricultural extension
Education, training and information
Investing in the
capabilities of the poor
Connecting the Poor to
Opportunities
Source: The World Bank (2006)
Rural roads
Access to credit
Labor markets
Through this section it is shows that macroeconmy assumption and proper
investment on poor people assets improve poverty alleviation. By indicating these
parameters we elucidate the scope of certain parameters as fundamental dimension
to be concern for poverty alleviation project. Improving ecosystem services or rural
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electrification to enhance well-being of poor people are crucial points for the
projects to produce multiplier effect in the community.
2.3. Renewable Energy and Poverty Alleviation
In Indonesia the linkage between energy and poverty driven by lack of energy
access services Gunningham, (2013). At household level the accessibility of energy
service mainly for lighting and cooking facilities. The energy access play crucial
role in the energy profile of poor, accessibility due to cost arises (e.g. lack of
distribution access) and collected fuel to evade monetary transaction are
fundamental factors that cause poor people consider whether they change to switch
energy consumption, type of appliances to be used and cleaner technologies. The
cost of monetary accounting still dominant factor for the poor to switch from either
previous technologies to newer technologies or fossil technologies to renewable
technologies Bhattacharyya, (2006). Therefore, it is logic for the poor to have a
natural energy preference for the energy consumption without money transaction.
At least there are three economic factor that would fulfill needs for the poor
household in terms of energy demand (Bhattacharyya, 2006), as follows
a) The energy should suitable for the poor in order to satisfy households basic
needs;
b) Minimum of money transaction;
c) The modern energy should meet with willingness to spend of poor people to
purchase commercial energies.
Since 1990-s Indonesia has been granted from World Bank Group for energy project
portfolio both for Renewable energy small power and Solar home system (Martinot,
2001). According to Martinot, (2004), Ferrey, (2004), De Coninck, (2009) the
concrete linkage of renewable and poverty is improved access to high quality of
energy sources through energy resource saving and improving productivity. In
household level receiving better quality energy to gain access of education, health
services and productivity such as value added and job creation will improve
prospect of a better life in the future (Bhutto & Karim, 2007). Bhutto & Karim,
(2007) support Bhattacharyya, 2006) argument that energy supply to alleviate
poverty attained through unfolded of energy services. Poor people acquire the
access to high quality energy sources by investing economic efficiency and least cost
technology. The access to modern energy services can contribute to reduce poverty
by improving the quality of life by better lighting, access to cleaner cooking fuels and
safe drinking water. Furthermore, improving effective delivery of energy services by
strengthening reliability of energy infrastructure such as rural electrification for the
poor to get reliable space and water heating, lighting i.e. extending of study hours to
improve employment prospects, refrigeration of vaccines and other medicines and
sterilization of equipment in health centers. Those factors are close to meet basic
needs in order to improve poverty alleviation (Bhutto & Karim, 2007).
Price, (2000) also noted there is potential effects of improved energy services in
reducing of poverty. She depicts direct as well as trickle down effect on how those
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dimension improve welfare effects for the poor. There are various ways those
potential affect of energy services on poverty alleviation. As we mentioned
previously the poverty alleviation engage in three primary factors that would
generate on wellbeing. Improving economic opportunity to be regained by
improving productivity along with expanding fiscal space for the poor may foster
poor people to have benefit by enhancing its services.
Table 4. Potential effects of improved energy services in poverty alleviation
Direct effects on
well-being
Direct effects
on health
Direct effects
on education
Improved access to
lighting, heat and
refrigeration
Improved indoor
air quality
through cleaner
fuel
Saving in time and
effort (due to
reduced need to
gather biomass
and other fuels)
Reduced fire
hazard
Improve quality
of health
services (through
better lighting,
equipment and
refrigeration)
Reduction in
energy expenditure
Improved access to
information
(through radio,
television, and
telecommunication)
Direct effects
on economic
opportunities
for the poor
Trickle down
effect of
increased
productivity
Improved access
to lighting,
allowing more
time to study
Easier
establishment
and greater
productivity of
business that
employ the poor
Easier
establishment
and greater
productivity of
business in
general
(including
through positive
impact on the
environment)
Saving in time
and effort
releasing time
and energy to
channel to
education
Creation of
employment in
infrastructure
service delivery
Easier
establishment of
health centers
Better education
Productive uses
of energy
Improved health
and education
and savings in
time and effort
increasing
individual
productivity
Fiscal space
(coupled with
pro-poor
policies)
Smaller fiscal
burden and
higher fiscal
returns from
more efficient
services
More benefits to
the poor if
government
spending is
effectively
channeled to
welfare
enhancing
services
Higher fiscal
returns
associated with
higher growth
couple with pro
poor policies
Source: Price, (2000), Terrapon-Pfaff et al. (2014) .
Reconciling direct effect of economic opportunities and productivity improvement
are strongly intertwined by associating education and health aspect. Those major
factor are associated through repercussion process by enhancing labor skilled
capacity due to improving of energy services which directly affected on health and
education. Eventually, those dimensions are concurrently alter of the poor people
well being and creates poverty alleviation. However, those factors are unachievable
without the provision of electricity. Improving energy independence by utilizing of
local energy to strengthen supply of electricity is another issues for rural people in
Indonesia, should be addressed. Geographical factors obstacles and lack of on grid
infrastructures has led rural electrification become a hindrance to achieve rural
electrification especially in remote island or other outer area across Indonesia
(Gunningham, 2013). On the other hand, there are several obstacles for Renewable
Energy (RE) project to be succeeded by its objectives. The factors that influence on
sustainability of RE project distinguished by positive influences and negative
19
influences (Terrapon-Pfaff et al., 2014). The positive influence consist of increasing
capability and transfer of knowledge of local people to maintain and repair service
of the renewable energy technologies, improving cohesion of trust and reliability
between community and stakeholders which strengthen of stake holders
organization in the community. Contradictory, negative influence also raised if the
technology inappropriate and pol external influences such as politic, institutional
and environmental aspect are interfere into project, social factor such as low
motivation and logistic hindrance for installment and retrieving of spare parts for
maintenance and reparation. ITDG et al. (2005) have compared different
electrification in which electricity source and benefit of electricity source to produce
social and environmental impact. For complete information please see Table 3.3.
below.
Table 5. Comparison of different renewable energy technologies for rural
electrification
Electricity
source
Capital cost per
connection
Running
cost
Comments
Grid connection
Low/
high
(depending
on
remoteness)
Low
Can supply all services
but can be expensive
to supply sparsely
populated rural areas
Diesel generator
Medium
High
Micro-hydro
Low/High
Low
Available but
expensive to run. Also
supply of diesel to
rural areas can be
irregular.
Good option for
supplying many
energy services. Long
lifetime.
Pico-hydro
Low
Low
High
Low
Solar
system
home
Good for household
option. Low running
and maintenance cost.
Provides power for
lights and TV.
Expensive household
option. Low running
and maintenance
costs. Provides power
for lights and TV.
Social and
environmental
impacts
Requires
centralized
production
mostly from fossil
fuels that
produces
greenhouse gas
emission. Locally
polluting ans
socially
disruptive. Lack
of local control
Causes local
atmospheric,
noise and ground
pollution.
Depends on water
availability. Very
low
environmental
impact.
Depends on water
availability. Very
low
environmental
impact.
Pollution-free.
20
Solar lantern
Medium
Low
Wind generator
Medium
Low
Portable, simple
cheaper than SHS,
could run radio, not
TV.
Can provide largescale capacity as well
as small scale. It can
be competitive with
conventional power
generation.
Pollution-free.
Depends on wind
availability. Very
low
environmental
impact.
Source: ITDG et al. (2005)
That Table demonstrates us different impact of technologies on environment as well
as social impact. From this study we elucidate the linkage between renewable
energy technology and poverty alleviation intertwined from supply side path. The
availability of renewable energy promotes well-being for the rural people and
reduce poverty. From this standpoint of literature review it is clear that renewable
energy is doable and viable to alleviate the poverty.
2.4. Project Context of Ecosystem Services
Before we moving on into project context, we will address the scope of ecosystem
services as part of decision making to be functioning to human welfare. Fisher et al.
(2009) define spatial relationship between service of natural resource as production
areas (P) and service that generate spillover benefit of its production services (B) as
Figure 3.3.
Figure 7. Possible relationship between production areas (P) and service benefit
areas (B)
Source: Fisher et al. (2009)
21
Figure 3.3. illustrates possible spatial relationships between P and B. Panel 1
indicates in situ classification – where the services are provided and the benefits are
realized in the same location e.g. soil formation, provision of raw materials. Panel 2
indicates omni-directional where the services are provided in one location then
spreading to another area close to surrounding landscape without directional bias.
Panel 3 demonstrate services delivered into directional benefits in the upstream
area into downstream area. For instance the impact of industrial and human
activities in Upper Citarum River (UCR) causes high priority for remediation in
downstream area that addressed for proper land use management and water
quality improvement in the basin (Suharyanto & Matsushita, 2011). The last one is
Panel 4 portray the service provision as coastal wetlands as storm and flood
protection to a coastline. This classification of ecosystem services identify
characteristic of landscape management as the spatio-temporal dynamic of
ecosystem, public private good and benefit dependence of services. In addition,
through this classification we able to measure the possibility of compensating
scheme as payments for environmental services (PES) between beneficiaries in the
downstream to compensate provider in upstream to cover opportunity cost of
preserving environment offsetting towards economic activity (e.g. Suharyanto &
Matsushita, 2011).
In terms of project output, project provides goods and services with their own
function. Subsequently, if we engage the project to provide either for natural
ecosystem preserving or improving natural ecosystem services, Groot et al., (2002)
classified 23 function of goods and services that closely relates to ecological
structure and underlying processes of those functions.
Table 6. Function, goods and services of natural and semi-natural ecosystems
No.
Functions
Ecosystem process and components
(Outcome)
Goods and services
(Output)
1
Gas regulation
Role of ecosystems in bio-geochemical cycles
(e.g. CO2/O2 balance, ozone layer, etc.)
1.1 UVb-protection by O3
(preventing disease). 1.2
Maintenance of (good) air
quality. 1.3 Influence on climate
2
Climate regulation
Influence of land cover and biol. mediated
processes (e.g. DMS-production) on climate
3
Disturbance
prevention
Influence of ecosystem
dampening env. disturbances
4
Water regulation
Role of land cover in regulating runoff & river
discharge
5
Water supply
Filtering, retention and storage of fresh water
Maintenance of a favorable
climate (temp.,
precipitation, etc) for, for
example, human
habitation, health,
cultivation
3.1 Storm protection (e.g.
by coral reefs).
3.2 Flood prevention (e.g.
by wetlands and forests)
4.1 Drainage and natural
irrigation.
4.2 Medium for transport
Provision of water for
structure
on
22
No.
Functions
(Outcome)
(e.g. in aquifers)
6
Soil retention
Role of vegetation root matrix and soil biota
in soil retention
7
Soil formation
Weathering of rock, accumulation of organic
matter
8
Nutrient regulation
Role of biota in storage and re-cycling of
nutrients (eg. N,P&S)
9
Waste treatment
Role of vegetation & biota in removal or
breakdown of xenic nutrients and compounds
10
Pollination
Role of biota in movement of floral gametes
11
Biological control
Population control through trophic-dynamic
relations
12
Refugium function
Suitable living space for wild plants and
animals
13
Nursery function
Suitable reproduction habitat
14
Food
Conversion of solar energy into edible plants
and animals
15
Raw materials
Conversion of solar energy into biomass for
human construction and other uses
16
Genetic resources
Genetic material and evolution in wild plants
Goods and services
(Output)
consumptive use
(e.g.drinking, irrigation
and industrial use)
6.1 Maintenance of arable
land.
6.2 Prevention of damage
from erosion/siltation
7.1 Maintenance of
productivity on arable
land.
7.2 Maintenance of natural
productive soils
Maintenance of healthy
soils and productive
ecosystems
9.1 Pollution
control/detoxification.
9.2 Filtering of dust
particles.
9.3 Abatement of noise
pollution
10.1 Pollination of wild
plant species.
10.2 Pollination of crops
11.1 Control of pests and
diseases.
11.2 Reduction of
herbivory (crop damage)
Maintenance of biological
& genetic diversity (and
thus the basis for most
other functions)
Maintenance of
commercially harvested
species
13.1 Hunting, gathering of
fish, game, fruits, etc.
13.2 Small-scale
subsistence farming &
aquaculture
14.1 Building &
Manufacturing (e.g.
lumber, skins).
14.2 Fuel and energy (e.g.
fuel wood, organic matter).
14.3 Fodder and fertilizer
(e.g. krill, leaves, litter).
15.1 Improve crop
resistance to pathogens &
pests.
15.2 Other applications
(e.g. health care)
16.1 Drugs and
23
No.
Functions
(Outcome)
and animals
17
Medicinal
resources
Ornamental
resources
Variety in (bio)chemical substances in, and
other medicinal uses of, natural biota
Variety of biota in natural ecosystems with
(potential) ornamental use
19
Aesthetic
information
Attractive landscape features
20
Recreation
Variety in landscapes
recreational uses
21
Cultural
and
artistic information
Variety in natural features with cultural and
artistic value
22
Spiritual
historic
information
and
Variety in natural features with spiritual and
historic value
23
Science
education
and
Variety in nature
educational value
18
with
with
(potential)
scientific
and
Goods and services
(Output)
pharmaceuticals.
16.2 Chemical models &
tools.
16.3 Test- and essay
organisms
Resources for fashion,
handicraft, jewelry, pets,
worship, decoration &
souvenirs (e.g. furs,
feathers, ivory, orchids,
butterflies, aquarium fish,
shells, etc.)
Enjoyment of scenery
(scenic roads, housing,
etc.)
Travel to natural
ecosystems for ecotourism, outdoor sports,
etc.
Use of nature as motive in
books, film, painting,
folklore, national symbols,
architect., advertising, etc.
Use of nature for religious
or historic purposes (i.e.
heritage value of natural
ecosystems and features)
Use of natural systems for
school excursions, etc. Use
of nature for scientific
research
Source: Groot et al., (2002)
The objective of Table 3.3 is a basic indicators of goods and services with particular
function to be provided by a project. Output of the project creates goods and
services which accordingly to achieved function as an outcome either for generating
production services (P) or benefitting of service areas (B). Furthermore, Figure 3.4.
illustrates three different project based upon environmental service to be delivered.
We comprises the project according to outcomes with three objective to produce the
output. Every project aim is to produce significant additionality through three
different ways. The additionality generate impact by the following paths
1. In static path, without project benefit produce steadily outcomes over period
of the project. Otherwise, with project the benefit persistently increasing and
produce significant impact in the end of project. This situation indicates that
project generate huge impact rather than without project;
2. In declining path, it is assumed that project will improve efficiency.
Decreasing of cost instead of improving efficiency due to cost saving or
another factor will generate efficiency along with project implementation;
24
3. The last one is improving benefit during the project implementation. This
increasing path compare the efficacy of the project to business as usual in
particular period of project.
Figure 8. Three Different Projects of Environmental Services
Benefit
Outcomes
Additionality
With Project
Without Project
Time
Project start
Efficiency
Outcomes
Additionality
Without Project
With Project
Project start
Improving
Outcomes
Time
Additionality
With Project
Without Project
Time
Project start
Source: Wunder, (2007) with revision.
25
2.5. Inclusive Growth in Project Context
From previous section, we have demonstrated various indicators and parameters to
describe relationship of natural resources management and renewable energy
impact on poverty alleviation. In this section we concern on how the project affect
on inclusive growth to the households. By employing in households level we employ
method as stated by Ali & Son, (2007)4. Simplifying the process the inclusive
growth, indicator measured by improving participation of household in the project.
The greater of number of household participation in the project, the bigger benefit
that household will received towards in the end of project. Outcomes will increase
along with increasing of hare of household participation within period of project.
The impact of inclusive growth measured by additionality of without project
household and outcomes received by the household. By comparing to with project it
is convey that project increase outcomes or benefit within period of the project. We
can estimate how many household will received benefit as multiplier outcomes from
the project outcomes. This result shows in Figure 3.5. when the project affect on
improving of benefit from the project.
Figure 9. Measuring Inclusive Growth From the Project.
Outcomes from the
projects
End of the projects
With projects
Without projects
Cumulative share of
Households
100% for entire population
Source: adopted from Ali & Son, (2007)
4
For detail formula please refer to Ali & Son, (2007).
26
Chapter 3 Measuring Renewable Energy Projects toward
Inclusive Growth
In early chapter we illustrated how the renewable energy project affect on poverty
alleviation and which parameter we should consider to interlink between energy
services and poverty alleviation associated through social and economic activity. In
this chapter we explore into deeper analysis on how those aggregate indicators
derived into concrete ways of promoting renewable energy project for rural people
toward enhancing benefit/ outcomes in the project. We embarked the renewable
energy project by designating impact of the project on improving the lives of the
poor. Afterwards, the project should demonstrated in which channel project be able
to tackle energy solution and delivering of energy services. Hence we evaluated
whether or not the project is viable for improving outcomes to expand energy
access for the poor. Later on we explore how inclusive growth agenda entail within
renewable energy project by measuring outcomes through economic rate of return
(ERR).
Furthermore, we analyzing on risk assessment that usually occur in renewable
project. Why risk analysis is important to be assessed for project evaluation?
Because renewable energy source (RES) technologies differ compare to
conventional energy (CE). This technology recognized have higher risk than
conventional energy. For detail information of differences between Renewable
Energy Sources (RES) and Conventional Energy (CE), please refer to Table 3.1.
Table 7. Differences between Renewable Energy Soruce (RES) and Conventional
Energy (CE)
Parameters
Track record
New Technology Time to
Market
Familiarity with technology
throughout the value
chain/stakeholders
Operating margins
Investment horizon
Debt/ Equity
RES
Relatively short (<20 years)
Fast
CE
>> 20 years
Medium
Low
High
Low
Typically > 10 years
70/30
Dependence on government
support mechanism
Risk of unknows factors
influencing the project
profitability
Sensitivity to variation in oil
prices
High
High
10-15 years
From 0/100 (upstream)
To 30/70 (downstream)
Low
High
Medium
High
High
27
Parameters
Sensitivity to variation in
electricity prices
Sensitivity to delay in
completion
RES
High
CE
High
High
Medium
Supply Chain maturity/stability
High
High
Level of development of
technical standards
High
High
Modularity (related to
min/typical investment)
High
High
High
High
Medium
High
High
Medium
Medium
Low
High
Low
Low
High
Medium
High
Low
High
Investment life cycle
criticalities:
 R&D
 Prospection (license)
 Financing
 Conception
 Procurement
 Construction
 Operations
 Abandon
Source: Altran (2011).
3.1. Renewable Energy Project related to reducing poverty
According to UNDP (2011), basis information to be shared in terms of energy
project at least should reflect (a) innovation in energy service delivery models; (b)
their contribution to mainstreaming energy access into national development
strategies; (c) the extent potential to expand, energy services for the poor; (d)
appropriateness of technology solution; sustained impact on targets beneficiaries;
(e) level of participation of the communities; (f) mainstreaming energy access into
national development strategies; (g) sustainability of the energy markets developed;
(h) institutional capacities built at the local and national level to scale up replicate
and mainstream energy delivery; (i) institutional partnership framework created to
bring together with functional partnership.
The basic steps for Renewable Energy project to be assessed is achieving objective
of the project. There are four parameters objectives for renewable energy project
should be addressed (UNDP, 2011):
1. Fuel efficiency gains leading to monetary saving outcomes. In this
objective monetary and opportunity cost-savings as the results for the
project which can impact on monetary measurement. The technologies that
offer by the project demonstrates saving of energy consumption as well as
saving households expenditure (fuel efficiency gains). Another parameters is
improved quality of service. This outcome show how the project be able to
28
improve better quality live such as better lighting homes effectively, no
pollution and improving health.
2. Productive uses of energy. Main objective of this activity is improving
households productivity either for agriculture or other productivity such as
small business scale (e.g. handicraft activity).
3. Employment creation and improved labor productivity. In some areas
Renewable Energy project generated employment through construction,
operation and maintenance of mini hydro project. Each project employs 8-11
local people during construction. In other project shows skills development
in Renewable Energy Project creates employment opportunities.
4. Improved assets ownership. Electricity brings lifestyle changes towards
home life more comfortable and housework easier. Its reflected in increased
use of household appliances such as water heaters, clothes irons, cookers and
grinder.
3.2. Financing Renewable Energy Project
In this section the basic renewable energy financial evaluation conducted through
basis parameters as illustrates in Table 3.2. In that renewable energy project
components consists of project output as project outcomes that defined the
outcomes that produces during the project implementation. The output should be
clearly inform for the project whether benefit, cost efficiency and improving benefit
within project period. Afterwards, depict households beneficiaries as an outcomes
to be involved in the project. Explain output of Capital Expenditures and Output of
the projects, evaluated whether the energy supply generated from the power plant
meet energy demand for the households. Along with the outcomes generates,
Table 8. Renewable Energy Projects Components for Financial Viable
With Project Financing
Project Outcomes (Benefit, Cost Efficiency, Improving-BCEI)
Number of Households beneficiaries
Size of Power Plant (PP)
Power Output (MW)
Energy Produced (kWh)-EP
Capital Expenditure (Capex) for PP
Operational Expenditure (Opex) and Maintenance
Benefit ($ Benefit life cycle) with Project (BEN)
Without Project
Outcomes Business as Usual (Current Prices x Quantity)
Number of Households beneficiaries
Without Project Benefit
Year 0
BCEI0
HH0
PP0
MW0
EP0
CAPEX0
OPEX0
BEN0
Year 0
woBCEI0
woHH0
woBEN0
Year 1
BCEI1
HH1
PP1
MW1
EP1
CAPEX1
OPEX1
BEN1
Year 2
BCE2
HH2
PP2
MW2
EP2
CAPEX2
OPEX2
BEN2
Year 3
BCE3
HH3
PP3
MW3
EP3
CAPEX3
OPEX3
BEN3
Year 1
woBCEI1
woHH1
woBEN1
Year 2
woBCE2
woHH2
woBEN2
Year 3
woBCE3
woHH3
woBEN3
29
Thereby, we can calculated Economic Rate of Return of Renewable Energy project
as:
æ rn - rn ö
(3.1.)
rn+1 = rn - NBn ç
è NBn - NBn-1 ÷ø
where NB = NBproject -NBwithout project , NB = Net Benefit that produces through benefit
and non benefit. rn as Economic Rate of Return (ERR) between project and non
project estimation. We accept the project with ERR > ERR benchmark.
In addition we exhibit Capital Expenditure in Renewable Energy project in various
Renewable Energy Source (RES) categories. This table is important to shows us
benchmark of Capital Expenditure (CAPEX) composition and Operating and
Maintenance Expenditure (OPEX) as a benchmark to evaluate rationality
expenditure in the project.
Table 9. Investment Cost for Renewable Energy Projects
RES-E sub category
Biogas
Biomass
Biowaste
Geothermal energy
Hydro large scale
Hydro small-scale
Photovoltaic
Solar thermal
electricity
Tidal energy
Wave energy
Wind onshore
Wind offshore
Specification
Agricultural biogas platn
Agricultural biogas plant - CMP
Landfill gas plant
Landfill gas plant – CHP
Sewage gas plant
Sewage gas plant - CHP
Biomass plant
Co-firing
Biomass plant – CHP
Co-firing – CHP
Biomass – district heating
Waste incineration plant
Waste incineration plant – CHP
Geothermal powerplant
Geothermal heat plant
Large-scale unit
Medium scale unit
Small scale unit
Upgrading
Large-scale unit
Medium scale unit
Small scale unit
Upgrading
PV Plant
Solar thermal power plant
Total (stream) power plant - shore
Tidal (stream) power plant – rear shore
Tidal (stream) power plant – offshore
Wave power plant – shoreline
Wave power plant – rear shore
Wave power plant - offshore
Wind power plant
Wind power plant – near shore
Investment
costs
€/kWh
2500 - 4200
2700 - 4400
1250 – 1800
1400 – 1960
2250 – 3350
2400 – 3500
2200 – 2500
550
2550 – 4200
550
350-750
4250 – 5750
4500 – 6000
2000 – 3500
800 – 2200
850 – 3660
1125 - 4875
1460 – 5950
800 - 3600
800 – 1600
1275 – 5025
1550 – 6050
900 – 3700
5400 – 6300
2900 – 4500
O&M
€/kW*year
115 – 135
120-140
50-80
55-85
115-165
125-175
75-135
60
80-155
60
25-41
90-155
100-180
100-170
50-57
35
35
35
35
40
40
40
40
40-50
105-230
3000
3200
3400
2400
2600
3200
945 – 1050
1750
50
55
60
50
55
60
35-40
65
Efficiency
(electricity)
[1]
0.26-0.34
0.27-0.33
0.32-0.36
0.31-0.35
0.28-0.32
0.25-0.3
0.25-0.3
0.37
0.22-0.27
0.2
0.18-0.22
0.14-0.16
0.11-0.14
Efficiency
(heat)
[1]
0.55-0.59
0.5 – 0.54
0.54 – 0.58
0.63-0.56
0.6
0.83-0.95
0.64-0.66
0.88-0.92
0.33-0.36
Lifetime
(average)
[years]
25
25
25
25
25
25
30
30
30
30
30
30
30
30
30
50
50
50
50
50
50
50
50
25
30
0.005-0.05
2-50
25
25
25
25
25
25
25
25
0.5
1
2
0.5
1
2
2
5
Source: Satyakti et al. (2011)
30
Typical
plant size
[MW]
0.1 – 0.5
0.1 - 0.5
0.75 – 8
0.75 – 8
0.1 – 0.6
0.1 – 0.6
1- 25
1-25
0.5-30
2-50
2-50
5-50
1-20
250
75
20
5.5
2
0.25
3.3. Risk Identification in RES
In order to elaborate uncertainties during project period, we have identified risk
selected in Table 3.4. – 3.6. as risk factors that impact on project monetary value.
The estimation on each risk factors estimated through Table 3.3. The risks
measured by the probability for each risk factors.
Table 10. Risk Analysis of Renewable Energy Projects
Assumed
Probability
Impact (PI)
20%
30%
10%
20%
Risks
Political Risks (PR)
Economic Risks (ER)
Social Risks (SR)
Technical Risk (TR)
Total Cost
Source: Author analysis, 2015.
Assumed Impact
(AI)
PR *Financial Value
ER*Financial Value
SR*Financial Value
TR*Financial Value
Impact Value
Expected
Value of Risk
(PI x AI)
PI * AI PR
PI * AI ER
PI * AI SR
PI * AI TR
Risk Value
Hence, in order to calculate risk value of the renewable energy project we refer to
formula:
Risk Value = Value of Project - Project Value
Value of Project = Project Value ´ ( Min Return Risk Value)
Project Value = Total Benefit Project
(3.2.)
(3.3.)
(3.4.)
Those equations from 3.2. to 3.4. stated how to interlink between risk value that
covered during period of the project. This equation 3.2. estimate the amount of risk
should covered according to different risk in the model. Probability of risk according
to procedure of Table 3.3 as an input into equation 3.3. accordingly. This formula
indicates whether the project highly risk or not to be implemented in the near
future.
Table 11. Political Measurement Risk in RES
Measurement
factors
Lobbying local
government
Type of measure
Accept risk
Impact on
financing costs
Increasing cost of
pre project cost
Risk managed
by deployment
of measure
Reduction in
government
commitment to
RES
Integration in
risk
management
model: cash flow
implication
These measures
are designed to
respond to
discrete points
where different
31
Guarantee by
developer of
income start date
after which the
investors would
receive base case
income
Legal and
Permitting
Bureaucracy
outcomes to
revenue can
occur
These measure
will manage risks
to the schedule
(based on
triangular
distribution)
Transfer of risk
Increasing of pre
project cost
Project delays
related to
permitting,
transfer of
licensing
Avoid Risk
Increasing of pre
project cost
Project delays
related to
permitting,
transfer of
licensing
These measures
will manage risks
to the schedule
(based on
triangular
distribution)
Risk managed
by deployment
of measure
Integration in risk
management
model: cash flow
implication
These measure try
to limit either the
negative impact in
cash flow and
Internal Rate of
Return (IRR) of:
 Income
delays
(long
permitting
or late
supply)
 Higher
investment
(price
increases)
or
difficulties
in getting
bank loans
due to
questionab
le
developer
bankability
These measures
limit the worst case
minimum income
when affected by
Source: Hughes et al., (2004)
Table 12. Economic Risk Measures in RES
Measurement
factors
Type of
measure
Impact on
financing costs
Joint Venture and
other
arrangements
Avoid Risk
Decreasing in
financing cost
Various risks
depending on the
risk appetites of
the JV (Joint
Venture)
partners. These
can include
permitting
processes,
insecurity of
supply, price
instabilities or
doubts on
developer’s
bankability
Insurance
Transfer Risk
Decreasing in
financing cost
Construction
delays, failures of
counterparties.
This can also
32
Guarantees
Transfer Risk
Derivatives and
risk transfer
approaches
Transfer Risk
Cash
management
options
Avoid Risk
Decreasing in
financing cost
cover loss of
business due to
weather,
vandalism or
force majeure in
general.
Ability of
contractor not
able to deliver on
time and on
quality
Various risks
depending on the
focus or risk
transfer product
(credit risk,
counterparty risk
or regulatory
risks likely in
respect of
economic factors)
Risks (for the
lender) of the
project not
servicing the debt
obligation as a
consequences of
allocation of debt
service cash to
other purposes
those events.
Implications on
schedule based on
uniform
distribution. Other
guarantees can
manage
Operational
Expenditure (Opex)
e. g. performance of
turbines or Capex.
Opex to service
financial
commitments of the
financial
instruments.
Continued balance
sheet strength if an
event happens
which is covered by
the agreement.
Risks (for the
lender) of the
project not
servicing the debt
obligations as a
consequence of
allocation of debt
service cash to
other purposes.
Table 13. Social Risks Measures
Measurement
factors
Integrated impact
assessment
Type of
measure
Accept
Impact on
financing costs
Decrease on
financing cost
Risk managed
by deployment
of measure
Numerous safety,
social,
environmental
and health risks
Integration in risk
management
model: cash flow
implication
These impact
typically results in
an increase in Opex
or Capex. In the
example of
underlying
resources
availability,
revenue can also be
affected.
33
Specific
mitigation and
monitoring
measures
identified
through
assessment
Avoid
Decrease on
financing cost
Stakeholders
engagement
Avoid
Decrease on
financing cost
There are
numerous risks
identified in and
assessment
ranging from
biodiversity
impact to the
theft of modules
Local
communities
opposition
This measure will
manage risks to
both Capex and
Opex.
Avoidance of dely
to schedule by proactive engagement.
Table 14. Technical Risk Measures
Measurement
factors
Type of measure
Impact on
financing costs
Risk managed
by deployment
of measure
Product
guarantee
insurance or First
request bank
guarantee by
supplier
Insurance
(weather)
Mitigate/
Transfer of risks
Decreases on
financing cost
Higher failure
rate of equipment
Mitigate of risks
Decreases on
financing cost
Service Level
Agreements
(Organisational
Agreements)
First request
bank guarantee
against minimum
O&M Service level
Mitigate of risks
Decreases on
financing
Difficulty in
accessing sites
due to bad
weather
conditions
Maintenance
service company
failure
Mitigate of risks
Decreases on
financing cost
Maintenance
service company
failure
Integration in
risk
management
model: cash flow
implication
Increase in Opex
reduction in
revenues
Higher Opex and
reduction in
revenue
Higher Opex and
compensation for
service level
failure
Higher Opex and
compensation for
service level
failure
34
Chapter 4 Measuring Sustainable Agriculture and Agroforestry/
Forestry Project
This chapter intend to elucidate financial analysis of agriculture or agroforestry
project. As we mention from previous chapter, measuring for each project such as
agroforestry or sustainable agricultures requires objectives to achieve. Quantifying
indicators either as sustainability of agriculture or minimizing impact of
environmental impact of agriculture is crucial to enable beneficiaries either farmers
or households as an indicator for inclusive growth. Before we move on financial
evaluation as generic measurement to measure ERR. Let we identified three generic
causal chain to reflect casual relationship between sustainability of agriculture and
project financing.
4.1. Project Objective and Outcomes
In Table 4.1. we identified indicators of environmental sustainability of agriculture
according to Reytar et al. (2014). Correspond to this definition we enable to
identified output as practical consideration as well as performance of output. This
indicators encompasses various aspect of sustainable of agriculture activities as a
basis for measuring of project output towards financial based activities. We
identified for each aspect as water, climate change, land conversion, soil health and
managing pollutant that control nutrients and pesticides. In order to produce these
indicators basis for estimation rely on accuracy of landscape data and proper
proxies to be estimated in indicator. Therefore we should refine the purpose, scope
and target of project beneficiaries to be engaged in the project. Confirmed, whether
the indicator benevolent for poor farmers.
Table 15. Indicators of Environmental Sustainability of Agriculture
Policy
Water
Existence of policies
requiring
measurement of
agricultural water
withdrawal
Practice
Share of irrigated
cropland area with
efficient irrigation
practices in place (%)
Performance
(1) Crop production
per drop of water
withdrawn (kilograms
of crop produced per
cubic meter of water
per year) in
combination with
(2) Water stress ratio
(water demand/water
supply in cubic
meters)
35
Policy
Practice
Performance
Climate Change
promoting low
greenhouse gas (GHG)
agricultural
development
Share of farm area
with agricultural GHG
emission management
practices (%)
Food production per
unit GHG emission
(tons of food produced
per year per ton of CO2
Land Conversion
limiting conversion of
natural ecosystem to
agriculture
(1) Share of
agricultural land
enrolled in agricultural
preserve program (.e.g.
zoning to preserve
production) %
(2) Share of former
agricultural land in
conservation set aside
program
Soil Health
that promote
agricultural
conservation
(1) Share of arable
land under soil
conservation practices
(%)
(2) Share of cropland
under conservation
agriculture (e.g.
organic soil cover
greater than 30%
immediately after
planting)
Nutrients
promoting nutrient
management practices
Share of agricultural
land under nutrient
management practices
Pesticides
Actions to ban or
restrict pesticides and
toxic chemicals under
the Stockholm
Convention (25-point
scale)
Share of cropland
under integrated pest
management
equivalent)
(1) Conversion of
natural resource (e.g.
forest, wetlands) to
agricultural land (crop
and pasture) (hectares
of converted land per
year)
(2) Share of
agricultural land over
X years that was stable,
share that shifted to
natural land, and share
that grew from natural
land conversion (%)
(1) Share of
agricultural land
affected by soil erosion
(%)
(2) Percent change in
net primary
productivity (NPP)
across agricultural
land (%)
(3) Soil organic matter
(carbon) content (tons
of carbon per hectare)
(1) Nutrient input
balances on
agricultural land (N)
and phosphorus (P)
inputs and output
(kilogram of N and P
per hectare of
agricultural land
(2) Fertilizer applied
per unit of arable land
(tons of nutrients per
hectare of arable land)
Pesticide use per unit
of cropland (tons of
active ingredient
applied per hectare)
Source: Reytar et al., (2014).
36
Another literature that conducted by Stork et al. (1997), verified with detail
objective in terms criteria and indicators for assessing the sustainability of forest
management and conservation biodiversity. This indicators shows types of verifiers
as a checklist for an assessment of indicators of biodiversity preserving.
Table 16. Types of Verifiers
Indicators
Landscape pattern is maintained
Changes in habitat diversity within critical
limits
Community guild structures do not show
significant changes
The richness size/ structure do not show
significant changes
Decomposition and nutrient cycling show
no significant change
No
significant
change
in
water
quality/quantity from the catchment
Primary
Areal extent veg. type
Number of patches per unit area
Largest patch size of each veg. type
Area weighted patch size
Contagion
Dominance
Fractal dimension
Average distance between 2
patches of same cover types
Percolation index
Total amount of edge for each veg.
type
Edge round largest patch
Vertical structure
Size class distributions
Relative abundance of leaf size
Gap frequency/ forest regeneration
phase
Canopy openness
Standing and fallen dead wood
Other structural elements
Relative abundances of tree species
in different guilds
The abundance of avian guilds
Abundance of nests of social bees
Measures of the pollution size of
selected species
Age or size structures
Diameter and height/ length of all
standing and lying dead wood
State decay of all dead wood
Abundance of small debris
Depth of litter/gradient of decomp
Abundance of imp decomp’ers
Leaf bags
Frequency of N-fixing plants
Soil conductivity and pH
Soil nutrients levels
Abundance / diversity of aquatic
organism
Leaf bags
Stream flow
Secondary
Pollination success in key plant species
Fruiting intensity
Abundance/activity
of
terrestrial
frugivorous mammals
Time series of relative population-size
estimates
Life tables and their statistics
Spatial structure of population
Chemical composition of stream
Source: Reytar et al., (2014)
4.2. Financing Project Objectives
After we define project scope, outcomes and obvious output next step we elaborated
financial estimation of agroforestry practices. Main objective for every project
encompasses this issues should focus on improving financial return in terms of
improving benefit or cost efficiency as we mentioned in Chapter 2. Analyzing the
37
economics of agroforestry practices is more complicated rather than other annual
crops. This complexity due to harmonizing trees and crops within similar landscape
area, which is this practices is difficult to assessed. For instance, evaluation benefit
of the activities require large plots, times and larges space to evaluate within spatial
and period of the project. Another aspect is long terms assessment of agroforestry
evaluation, that stimulate long term investment and cost of evaluation that led to
highly cost and more expensive.
In the first step, we should determine whether the project produces additionality
towards the project implementation. As we portray sample project in Table 4.2. We
adopt one project from Alavalapati & Mercer (2005) to illustrate how to measure
the project benefit and cost.
Table 17. Estimating Additionality Benefit and Cost
First Project
$US
$US
Extra Benefit
First Project
Extra Cost
First Project
Tree seedlings
Plantings
Additionality Benefit - (%)
Additionality Cost - (%)
End Project
$US
$US
Extra Benefit
End Project
Extra Cost
End Project
Source: Franzel (2005).
Table 18. Benefit and Costs Analysis of Financial Analysis woodlowt as compared to
maize allow system Tabora District, Tanzani (US$/ha)
Mize fallow
system
Rational woodlots
Benefits
Maize grain yield
Wood yield
Pruning yield
Total Benefits
Labor Costs
Land Preparation
Planting
Weeding
Fertilizer application
Harvesting
Threshing
Transplanting,
watering
digging microcatchments
Gapping
Pruning
Wood Harvesting
Total
Other Costs
Maize seed
Year 1
142.54
Year 2
88.85
142.54
23.53
112.38
Year 5
Year 1
158.39
Year 2
158.39
158.39
158.39
8.59
2.53
9.41
1.18
7.12
4.12
8.59
2.53
9.41
1.18
7.12
4.12
32.94
32.94
4.62
4.62
806.62
and
8.59
2.53
9.41
1.18
7.12
3.71
4.18
806.62
8.59
1.9
9.41
1.18
6.05
2.33
1.42
5.18
38.13
56.3
4.62
34.64
3.7
93.14
93.14
38
Mize fallow
system
Rational woodlots
Benefits
Fertilizer
Total
Other costs
Summary data
Total Cost
Operational Expenditure
Benefits and costs
Net benefit
Workdays
Net benefit to labor
Net benefit to labor/workday
Net present value
Discounted workdays
Discounted net benefit to labor
Discounted net benefit workday
Year 1
80.67
141.6
Year 2
64.54
68.24
179.72
275.11
102.87
-37.17
0.11
0.96
0.02
388.52
0.31
498.25
2.67
9.51
0.1
44.14
0.75
Year 5
Year 1
80.67
85.29
Year 2
80.67
85.29
93.14
118.24
180.64
118.24
713.48
0.27
806.62
5.09
40.16
0.09
73.1
1.31
61.36
0.14
111.68
1.31
40.16
0.09
73.1
1.31
Source: Franzel, (2005)
Above of all from Table 4.3. the assumption should strongly consider on how to
produce those value into coefficient and prices used in financial analysis. This
assumption should be determined as well as source of information for the project
whether project is rational or not. Table 4.4. provides coefficient and price to be
employ in previous financial analysis.
Table 19. Coefficient and Prices Assumption
Variable
Amount ($US)
Maize
Maize seed price
US$ 0.18/ha
Maize seed rate year 1
Maize seed rate year 2
Fertilizer rate
Fertilizer cost
Threshing
Maize yield, pure stand
Maize yield with trees, yr. 1
Maize yield with trees, yr. 2
Maize price
25 kg/ha
20 kg/ha
4 bags urea/ha
US$20.17/bag
US$3.70/100 kg
1943 kg/ha
1749 kg/ha
1090 kg/ha
US$ 0.081/kg
Trees
Transplanting watering and 88 trees/day
digging microcatchments
Transplanting cost
US$4.18/ha
Mortality rate
34 percent
Source of information
Average of 1995/1996 and
1996/1997 market prices
Farmers estimates
Farmers estimates
Research recommendation
Market price 1996/1997
Farmers estimates
On-station data adjusted
Average
market
price
1995/1996 and 1996/1997
Farmers estimates
On farm trial data
On farm trial data
39
Variable
Gapping rate
Tree population
Wood price
Amount ($US)
34 percent
625 trees/ha
US$ 5.28/Mg
Wood yield
152.7 t/ha
Tree seedling price
US$ 93.14/ha
Source of information
On farm trial data
On farm trial
Avg. cost of wood cut and
transp from forest 1995/96
and 1996/97
On-farm trial data, freh
weight
Market price 1995/96 and
1996/97
Source: Franzel (2005)
4.3. Risk Identification
In someway, it is really hard to assess identified risk in agroforestry project, to avoid
of increasing risk in agroforestry project usually its identified through sensitivity
analysis. Although sensitivity analysis not often proper assessment for risk analysis,
at least the results indicates us which parameter to impact on return on Capital
Expenditure (CAPEX) or Operational Expenditure (OPEX). In Table 4.4. we shows
the sensitivity analysis conducted by Franzel, (2005).
Table 20. Sensitivity analysis of the results of the financial analysis
Parameter
Base analysis
50% decrease maize yield
50% increase maize yield
50% decrease maize price
50% increase maize price
50% decrease wood yield
50% increase wood yield
50% decrease wood price
50% increase wood price
50% decrease wage rate
50% increase wage rate
30% discount rate
10% discount rate
Rotational woodlots
Return to
Return to labor
land (NPV,
(US$/workday)
US$/ha)
389
271
476
298
479
155
622
155
622
443
334
302
510
2.67
2.1
3.49
2.19
3.15
1.42
3.92
1.42
3.92
2.67
2.67
2.51
2.84
Maizes without trees
Return to
Return to land
labor (US$/
(NPV, US$/ha)
workday)
61
-56
179
-60
182
61
61
61
61
86
36
55
70
1.31
-0.12
2.56
-0.11
2.72
1.31
1.31
1.31
1.31
1.31
1.31
1.31
1.31
Source: Franzel (2005)
From this Table we have informed by sensitivity analysis that every increasing both
yield and price may hamper to the return of land and return to labor as wages. From
these indicators it is easy for us to identify risk probability that hampered in the
project. BY employing different discount rate, the impact may hamper onto return
as well as labor cost both form woodlots and maizes. Therefore with this analysis
we be able to assess which parameters should have strong assumption as well as
fundamental assumption for financial analysis in agroforestry project.
40
Chapter 5 Protection of Natural Resources Project
In Chapter 5 , we emphasis on water catchment or water harvesting as a proxies of
natural resource preservation project. Roetter et al. (2007) elucidated the linkage
between agriculture and environment to eradicate of poverty and hunger stimulate
by research questions? Is labor productivity low because of adverse natural or
physical circumstances? How can we utilize (agro) biodiversity to increase
productivity? How can we increase resource use efficiencies? In terms of ensuring
natural resource management basic questions on how the environmental
sustainability towards environmental sustainability as the followings are: Are
degrading environmental impact intrinsically linked to agricultural production?
How to analyze vulnerability and resilience in agricultural landscape? How to
analyze agricultural landscape mosaic? These basic questions presumably as basic
objectives of the project which encompassing of agriculture activities to preserve or
protect biodiversity that led poverty alleviation.
According to Roetter. et al., (2007) development process for improving soil and
water conservation planning at catchment scale is priorities for farmer to improve
production and soil conservation by against productivity looses rather than
preventing soil degradation. There are several main objectives for the project
should be considered to achieved water catchment area those are:
 Develop field scale indicators and measured of erosion and sedimentation
based on indigenous knowledge of soil and vegetation characteristic;
 Measured frequency of erosion, sedimentation and soil productivity at
catchment scale with erosion assessment as basis study for conduction
project;
 Explain specific method to catchment scale and water conservation in
particular landscape at farm level;
 Depicts and measured in monetary terms budget based upon activity to
achieved those objectives.
In particular of measuring impact of flood risk on agriculture activities especially
for estimation direct economic flood damage, Merz et al (2011) proposes procedure
to estimate direct economic as follows:
1. Classify element of risk into homogenous damage classes in order to resolve
problem as well as improving efficiency of project investment;
2. Expose the numbers of type of element at risk by various scenario;
41
3. Conduct sensitivity analysis to measured different element at risk to flood
impact by damage function.
Moreover, Merz et al., (2011) illustrates how the terms of flood hazard and risk of
flood risk impact on direct economic damage.
Figure 10: Illustration of the impact of flood hazard on economic activity
Source: Merz et al., (2011).
If we looking at Figure 1, it seems that this conditions as a basis for business as
usual (baseline data) that depicts existing condition within project landscape area.
In this landscape area, it is importance to identify through information such as:
 Assessment of flood vulnerability, e.g. households or communities are
vulnerable to floods at various impact. The impact consist of direct tangible
which destruct on infrastructure. Direct intangible such as loss of life,
injuries. Indirect tangible for instance production losses, disruption of public
services; Indirect intangible such as trauma, or loss of trust in authorities;
 Flood risk mapping. This map performed in micro scale i.e. community area;
meso scale i.e. residential areas, or industrial areas; macro scale-large scale
spatial unit such as municipalities or administrative units.
 Optimal decision on flood mitigation measures, e.g. difference scenario to
mitigate flood hazard;
 Comparative risk analysis to assess and prioritize for the household, in which
area affected by flooding with consistent damage estimation;
 Appraisal of risk, whether insurance companies cover the flooding risk.
Correspond to those indicators, the project assessment briefly portrayed in Table 1.
In Table 1, fundamental assessment of project aims is improving additionality
between With Project Results Indicators in Area 1 with Without Project Results
Indicators in Area 1. In the last columns of Table 1 indicates project results that
shows performance of the project, either improve or deteriorate of the outcomes
according to ideal performance. By assessing these indicators through additionality,
it is straightforward for us to estimate whether the project are highly impact on
42
improving benefit for the households especially for poor households or poor
farmers in respective area.
Table 21. Additionality and project aims
Without Project Results
Indicators in Area 1
Soil erosion
Water conservation
Flood frequencies
Susceptibility
Risk
With Project Results
Indicators in Area 1
(Target of Project)
Decreasing of Soil Erosion
Improving water conservation
Reducing flood frequencies
Reducing susceptibility
Reducing Risk by exposed of
households impact by flood
Additionality
in Area 1
Amount of decreasing
Amount of water conservation
Amount of flood
Amount of coverage area
Amount of Households
beneficiaries
Source: Author Analysis, 2015.
5.1. Project Objectives
In the following section, we intensively proposes the project as proposed
technologies to improve outcomes of the water catchment or water harvest project.
Flooding frequencies occur due to soil erosion causes. Predicting of soil erosion in
business as usual is necessary to predict whether the soil erosion in current
conditions either improve or deteriorate. Moreover, Sivakumar & Ndiang’ui, (2007)
assessed land degradation degree by identifying various indicators as depicts in
Table 2.
Table 22. Assessment of Degradation Degrees
Degradation
type
Assessed degradation attributes
Lost Soil
Soil Erosion
Soil salinity
Topsoil
Subsoil
Gullying
Space between rills (water erosion)
Area coverage by holes
(wind erosion)
Sheet erosion
Blow out areas, hummocks
Vegetation cover
Observed salinity (in ECe)
Salinity change during last 50 years
(in EC, and ESP<15%, pH<8.5, 3
range classes within the range
5mS/cm - >16mS/cm)
Nutrient
Range of values (from low to high degree)
Global Assessment of
Desertification of Arid
Land Degradation
Lands 1983 - 1992
(GLASOD) 1990
Little to all
Little to all
None to some
Low to severe
>50m - <20m
10%- >70%
Moderate to severe
Few to numerous
<30% - >70% of area
ECe x 103 < 4 – Ece x
103 15 mmhos
Slightly to severely
saline, depending on
the number of range
classes added to
salinity prior to
degradation
Cultivation of cleared range or
43
depletion
Vegetation
forrest
Cultivated crop
Potential of fertilizer to offset lost
productivity
Quality of soil parent material
Representation of climax species
Loss in range productivity
Range quality estimate
Crop yield
Perennial/annual crop
Moderate to non
existent
Rich to poor
50% - <10%
>35% - >75%
Fair-poor
<10% - >90%
Source: Sivakumar & Ndiang’ui (2007)
In more detail, DeGraaf (1996) proposes multiple spread sheet as multiple
assessment to be included in the project. These multiple spreadsheet consist of
various data should be attached in the project data. There are several databases as a
basic assessment for with project and without project, as shown in Table 1.
Figure 11. Multiple spreadsheet pattern in water catchment project
Source: DeGraaf (1996)
From figure 2, we follow the project appraisal by evaluating the project according to
the following stages. We revised the stages from DeGraaf (1996) and adapted into
our project objectives. We revised the project objective according to poverty
alleviation as improving beneficiaries of households coverage within area. The
crucial aspect in these stages are on-site effect of erosion which indicators indicates
in Table 3. In Table 3 it is clearly defined that project activities in natural resource
project especially in water catchment area consists by two major activities. The
crucial factor in the project should address clearly is determining evaluation criteria
in the project that led to additionality improvement. In addition of these evaluation,
criteria analysis conducted into on site impact estimation (how much activities as
well as output estimation towards improving additionality). In this regard, through
those activities will generates costs as well as capital expenditures (e.g. cost
44
allocation ) through reflecting outcomes such as improving benefit of outcomes (i.e.
inclusive growth and poverty alleviation).
Table 23. Framework for appraisal project in water catchment area
Project Preparation
1.
2.
3.
4.
5.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Project Appraisal
12.
13.
Preparatory phase
Ecological setting
Socio-economic situation for rural households especially poor
households or poor farmers
Potential components of water catchment impact
Project organization – institutional matters
Alternatives or option for achieving outcomes
Role of actors (stakeholders mapping)
Determining evaluation criteria in the project
Input by stakeholders
On site impact estimation (with project impact assessment)
Downstream impacts estimation
Other impact estimation
Overall impact estimation
Financial analysis regarding cost and benefit analysis
Cost saving analysis
Inclusive growth within project (improving beneficiaries in the
projects)
Sustainability
Trade-off analysis
Source: DeGraaf (1996)
In more detail analysis, the Capital Expenditure should concern impact assessment
correspond to output components as depicts in Table 4. The output clearly related
to outcomes as a basis analysis for project implementation.
Table 24: Impact assessment by component
Project Implementation
Y0 Y1
Y2
Y3
Effect
Input Cost:
Labor Inputs
Material Inputs
Physical effects:
Reduced run-off
Increased infiltration
Reduced erosion
Reduced fertility loss
Economic Effects
On site product
Increase downstream eff.


Y4


























In Table 4, basis output as derived from Table 2 generates project implementation
as shown in Table 5. For each outcomes as an output in Table 4 such as reduced runoff, increased infiltration, reduced erosion, reduced fertility loss, economics effects
45
and on site products incorporated into more detail in project implementation as we
seen in Table 5.
Table 25. Outcomes generates outputs
Project Implementation
Y0 Y1 Y2 Y3 Y4
Effect
Input Cost:
Labor Inputs
Material Inputs
Physical effects:
Reduced run-off (RRO)
- Material for RRO…
Increased infiltration (II)
- Material for II…
Reduced erosion (RE)
- Material for RE
Reduced fertility loss (FL)
- Material for FL…
Economic Effects
- Employment creation…
- Cost Saving etc…
On site product
- Improving Productivity…
Increase downstream eff.
- Physical effect
- Economic effect

















































For each physical effect produces output and outcomes as coloured in red color
shape format, on the other hand the green colour format shows us the impact of
improving output as an impact on employment creation, agriculture productivity
and ancilary impact of on site impact towards downstream impact. These impact
shows in green colour shape format. In latest year in green table area, the checklist
symbol indicates as an impact in fourth year that generates into economic impact as
demonstrates in Year 4. In the following outcomes (i.e. green shaped format)
reflected as an impact from red colour impact from physcal impact along with
improving productivity. The linkage between green and red shape format should
strongly produce determinant factor affected on outcomes effect, these parameters
should informed through strongly reference that project activities produce
outcomes.
46
5.2. Financial Aspects of Water Catchment Area
In financial analysis, the water catchment area conducted through activities as
depicted in Table 6 and Table 7. For every activity and assessing of Economic Rate of
Return (ERR) assesed in Table 7. In this Table every outcomes as well as impact
assesed through previous table and produce results in Table 7. ERR calculated
according to Ely & Miller (2001),
*0
Cn*0 + Cn-1
+... + C1*0 g n-1
(1)
r=
Cn*0 1+ g +... + g n-1
(
(
)
)
where C as cash flow and g is growth of return from the project, the economi rate of
return estimated by two impact between without and with project of cash flow of
project. We should evaluated additionality by two outcomes between without
project as business as usual and with project as reflected in physical and economic
effect. Those aspect are evaluated through outcomes as improving or decreasing of
outcomes during project implementation. The figures shows in spread sheets in
Table 7, both in physical effect and economic effect outcomes.
The economic effect estimated by changes between net benefit ((benefit-cost of with
project) – (benefit – cost of without project)) along with project implementation.
During these project we see both outcomes increasing in terms of benefit that
improving productivity in economic effects aspects. Net benefit estimated by
estimating cash flow over discount factor across 10 years of project implementation.
During period of project implementation, net benefit are negative in early project
period and incerase in medium project of implementation.
In latest row of spread sheets the ERR estimated at 32.62% which is the value of net
benefit with project larger than net benefit without project. This indicates the value
produce high ERR. We can conclude that project accepted to be finance feasible to
conduct.
47
Table 26: Spreadsheets Sample for Water catchments Project
Year
0
Capex --> Physcal Effect
Labor Cost (person) :
Material for RE (in 000)
Material for RO (in 000)
Material for II (in 000)
Material for E (in 000)
Material for FL (in 000)
Total Cost
Physical Effect:
Without project:
Reduced run-off
Increased infitration
Reduced erosion
With Project
Reduced run-off
Increased infiltration
Reduced erosion
Year
1
5
Year
2
Year
3
Year
4
Year
5
Year
6
Year
7
Year
8
Year
9
Year
10
0
5
50
25
50
35
25
185
5
50
25
50
35
25
185
5
50
25
50
35
25
185
5
50
25
50
35
25
185
5
50
25
50
35
25
185
6
50
25
50
35
25
185
6
50
25
50
35
25
185
7
50
25
50
35
25
185
7
50
25
50
35
25
185
7
50
25
50
35
25
185
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
0
0
0
0
0
0
0
0
0
0
0
0.1
0
0
0
0.11
0.12
0.1
0
0.12
0.13
0.12
0.05
0.13
0.14
0.13
0.06
0.14
0.15
0.14
0.07
0.15
0.16
0.15
0.08
0.16
0.17
0.16
0.09
0.17
0.18
0.17
0.1
48
Table 27: Spreadsheets Sample for Water catchments Project.. (contd)
Additionality
Reduced run-off
Increased infitration
Reduced erosion
Economic Effects
Without Project
Employment Creation (per)
Wages: Rp1000.00
With Project
Employment Creation (per)
Wages: Rp1500.00
Productivity
Without Project
Quantity
Revenue; Price = 10000
In (000)
With Project
Quantity
Price
In (000)
Benefit - Cost
Without Project In (000)
With Project In (000)
Net Benefit In (000)
Economic Rate Return
Year
Year
Year
Year
Year
Year
Year
Year
Year
Year
Year
0
1
2
3
4
5
6
7
8
9
10
1
1
1
1
1
1
1
1
1
1
1
1
0.9
1
1
1
0.89
0.88
0.9
1
0.88
0.87
0.88
0.95
0.87
0.86
0.87
0.94
0.86
0.85
0.86
0.93
0.85
0.84
0.85
0.92
0.84
0.83
0.84
0.91
0.83
0.82
0.83
0.9
2
2000
2
2000
2
2000
2
2000
2
2000
2
2000
2
2000
2
2000
2
2000
2
2000
2
2000
5
7500
5
7500
5
7500
5
7500
5
7500
5
7500
6
9000
6
9000
7
10500
7
10500
7
10500
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
1000
1000
1000
1120
1300
1350
1400
1500
1600
1700
1800
10,000
10,000
10,000
11,200
13,000
13,500
14,000
15,000
16,000
17,000
18,000
9,998
9,992
4,346
4,264
1,889
1,853
821
904
357
457
155
206
67
93
29
43
12
20
5
9
2
4
-5
-82
-36
82
100
51
25
14
7
3
1
32.62%
49
Chapter 6 Ecotourism: Towards Sustainable Development
Special relationship between tourism and sustainable development arises because
three important aspects such as interaction, awareness and dependency (UNEP &
WTO, 2005). Interaction aspect arises because the nature of tourism based on
delivering an experience of new places that involve between local environmental
interaction both direct and indirect, visitors and host communities. Awareness
concern on environmental issue and differences between nations and cultures
which affect attitudes and awareness for sustainability issues. Dependency as
strong relationship between experience intact, clean environment, attractive natural
areas, authentic historic and cultural traditions which these actors are inter related
and attributes to each other. Through these aspects the tourism produce sensitive
situation that produce advantage and disadvantage. The advantage of the tourism
creates opportunities for enterprises development and employment creation
through stimulating investment for local services; bring economic value added of
natural and cultural resources to be more preserve and increases of conservation
support from local communities as well as visitors; improving mutually benefit
between environment and inter culture relation. On the other hand tourism led
direct pressure of fragile ecosystem towards degradation of the physical
environment and disruption to wildlife; increasing pressure to local communities
and lead to dislocation of native societies; contributing to local and global pollution,
detrimental to the environment by utilizing scarce resource especially land and
water that led vulnerable and unstable source of income due to decreasing of
ecosystem service of tourism site.
In order to achieved sustainable tourism we constitute key elements of sustainable
tourism by determining of factors such as optimal use of environmental resource;
respect of socio-cultural authenticity of native and local communities to conserve
their cultural heritage and traditional value by improving inter-cultural
understanding and tolerance; assure that ecotourism project is viable, long term
economic operations, generating benefits and inclusive growth, stable income and
employment creation.
There are twelve dimensions to achieved sustainable tourism (UNEP & WTO, 2005):
1. Economic viability; establishing viability and economic competitiveness of
tourism destination and enterprises to deliver benefit for the people in long
term.
2. Local prosperity; maximizing economic prosperity for local community.
50
3. Employment quality; strengthening and improving quality of jobs supported
by tourism including level of pay, condition of service and available without
discrimination by gender, race, and disability.
4. Social equity; ecotourism bring fair distribution of benefit and inclusive to
the local economy to receive better benefits and improving better life for the
poor;
5. Visitor fulfillment; deliver safe, satisfying and experience for visitors.
6. Local control; engaging and empowering local communities to formulate the
planning, decision making and management for future development of
tourism.
7. Community wellbeing; improving quality of life in local communities by
improving social structures and access to resources, amenities and life
support systems.
8. Cultural richness; respect and enhance the historic heritage, authentic
culture, traditions and distinctive of local cultures.
9. Physical integrity; improving quality of landscapes to avoid physical and
visual of local environment degradation.
10. Biological diversity; conserved of natural areas, habitats, wildlife and
preserving ecosystem services in local environment.
11. Resource efficiency; minimizing use of resource scarcity and non renewable
resource in development and tourism facilities.
12. Environmental purity; minimizing pollution of air, water and land the
generations of waste by tourism enterprises and visitors.
Those criteria are interlinked and creates mutual benefits for each dimension which
depicted in Figure 1 below.
Figure 12. Relationship between factors in sustainable tourism
Source: (UNEP & WTO, 2005)
51
5.1. Project objective
In particular aspect of economic analysis, project output ecotourism outcomes
generates sustainable environment as well as economic viability. In order to deliver
competitiveness in ecotourism project emphasizing in the following areas (UNEP &
WTO, 2005):
 Understanding the market. Identifying the market potential as assessing
demand of visitors (market conditions), travel patterns and tastes, or market
research question for conducting demand pattern and preferences.
 Delivering visitor satisfaction. Maintaining the quality of services for every
visitors experience; improving competitiveness through differentiating of
tourism sites; assessing customer satisfaction by obtaining regular feedback
from visitors.
 Maintaining good trading conditions. Improving efficiency of
administrative process and reducing bureaucracy by mutual partnership
agenda. Strengthening labor supply and improving capacity building by upskilling for local communities to be skilled labor. Provide good accessibility
to tourism site by upgrading infrastructure which reduce transportation cost.
 Maintaining and projecting attractive destination. In this aspect we
emphasized the ecotourism towards economic viable by providing positive
and consistent image to ensure nature and quality of experience match
between brand image and tourist expectation. Provide safety and security
for the visitors. Preserve environment quality as preserving benefit towards
ecosystem services for the local communities.
In more detail outcomes Wearing & Neil, (2009) provides ideals of ecotourism ideal
indicators as a basis for ecotourism activities
 Should not degrade resource, development and should conform to
ecologically sustainable best practice. Maintaining biodiversity metrics to
measure whether the resource as well as local environment or biodiversity is
well preserved during project implementation.
 Should provide long-term social, economic and environmental benefits to
local community. Generates benefit from the project that produces income
improvement, employment creation e.g. direct employment, indirect
employment and induced employment and enterprises due to investment in
tourism business
 Should recognize limits to growth and necessity of supply-oriented
management. Estimating capacity of tourism site as maximum capacity for
the visitors to visit into tourism site;
 Should prepare travelers to minimize negative impacts through education,
maintenance of small groups, minimal resource use and avoiding sensitive
areas. Educating visitor to comprehend the linkage between environment
and limits to growth.
52




Should provide cross-cultural training for appropriate staff. Respecting local
cultures and educating visitors of local biodiversity improve ecosystem
services for the local community.
Should involve education of and understanding between all stakeholders and
recognitions of the intrinsic resource value and encourage ethical
responsibility toward the natural and cultural environment;
Is sensitive to and carefully interprets indigenous cultures;
Marketing is accurate.
5.2. Financial Analysis
In this section we provide with hypothetical data of ecotourism project to be
implemented in 10 years project period with discount price 13% for each year.
Project aims is improving benefit of natural/ forest conservation area by improving
Simpson Diversity Index (Simpson, 1949) to indicates the natural conservation
improve in additionality terms. This indicators provide as how the ecotorusim
project improve biodiversity index to be close to one. The result of the project
shows in the Figure 2.
Figure 13. Simpson Diversity Index Additionality
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0
1
2
3
4
SDI Without Project
5
6
7
8
9
10
SDI With Project
Source: Author Calculation, 2015.
Note: SDI = Simpson Diversity Index
In Figure 2 it is shows the impact of additionality with and without project which
distinguish the gap as additionality of the project to improve biodiversity index. This
53
estimation calculated according to assumptions that with ecotourism project, the
local communities able to finance for enhancing diversity in local area of forest.
These financing activities delivered through ecotourism by erecting tourism site as
capital expenditure and operational expenditure which contribute employment
creation and improving benefit of enhancing income surrounding the area.
Figure 14. Improving of Labor Creation in Local Area
30
25
20
15
10
5
0
1
2
3
4
5
Labor Without Project
6
7
8
9
10
11
Labor With Project
Source: Author Calculation, 2015.
In Figure 3, it is portray that ecotourism project produce labor creation and
improving income from Rp7.500.000 to Rp23.000.000,00 for each year. This benefit
gained to the local communities which both improve natural resource improvement
as well as labor creation. In terms of inclusive growth the increasing of participating
of labor creation by twofold increase in average (2,05 per workers) during project
implementation.
We assuming that visitors come to this tourism site by moderate assumption in a
year (2500 visitors for each year without any increasing). The revenue generates
through three types of by cabin occupation , visitor attraction and only walking
around the site. We enacted the attraction ticket with the same price with entrance
ticket. Every visitor will get site attraction by playing paint ball, flying fox, and other
attraction. With this offer, the visitor usually will take both of ticket besides
entrance ticket. For detail revenue item, we provide in the spreadsheets below.
According to the financial analysis the Economic Rate of Return calculated at 20.4%
which means the project is feasible to be proceed for implementation.
54
Table 28. Spreadsheets of Ecotourism Project
Year
0
Without Project
Environmental Indicators
The level of biodiversity pressure
Simpson Diversity Index
0.5
Number of Worker
10
Income from Sites/ Year
7,500.00 75,000.00
7500
With Project
Capital Expenditure
Building Cabin/ House 3 person x 20
@ unit price Rp.10.000.000,00
20,000
Trekking
30,000
Sites Attraction
20,000
Preserving biodiveristy and water
10,000
80,000
Year
1
Year
2
Year
3
Year
4
Year
5
Year
6
Year
7
Year
8
Year
9
Year
10
0.5
10
0.49
11
0.48
12
0.47
12
0.47
13
0.46
13
0.45
13
0.45
13
0.45
13
0.44
13
75,000.00
7500
82,500.00
7500
90,000.00
7500
90,000.00
7500
97,500.00
7500
97,500.00
7500
97,500.00
7500
97,500.00
7500
97,500.00
7500
97,500.00
7500
20,000
30,000
20,000
10,000
80,000
55
Table 29. Spreadsheets of Ecotourism Project
Growth of visitors
Revenue
Tourism Visits in one year
Occupied tourist
Visitors
Attraction revenue
1
1
1
1.00
1.00
1.00
1.00
1.00
1.00
1.00
0
-
2.50
1,000,000
150,000
50,000
1,200,000
2.50
1,000,000
150,000
50,000
1,200,000
2.50
1,000,000
150,000
50,000
1,200,000
2.50
1,000,000
150,000
50,000
1,200,000
2.50
1,000,000
150,000
50,000
1,200,000
2.50
1,000,000
150,000
50,000
1,200,000
2.50
1,000,000
150,000
50,000
1,200,000
2.50
1,000,000
150,000
50,000
1,200,000
2.50
1,000,000
150,000
50,000
1,200,000
2.50
1,000,000
150,000
50,000
1,200,000
20
-
20
180,000
180,000
460,000
820,000
25
180,000
180,000
575,000
935,000
25
180,000
180,000
575,000
935,000
26
180,000
180,000
598,000
958,000
26
180,000
180,000
598,000
958,000
26
180,000
180,000
598,000
958,000
26
180,000
180,000
598,000
958,000
26
180,000
180,000
598,000
958,000
26
180,000
180,000
598,000
958,000
26
180,000
180,000
598,000
958,000
0.5
120,000
0.55
120,000
0.56
120,000
0.57
120,000
0.58
120,000
0.59
120,000
0.6
120,000
0.61
120,000
0.62
120,000
0.63
120,000
0.64
17,778
17,778
17,778
17,778
17,778
17,778
17,778
17,778
17,778
17,778
1,200,000
940,000
260,000
242,222
1,200,000
1,055,000
145,000
127,222
1,200,000
1,055,000
145,000
127,222
1,200,000
1,078,000
122,000
104,222
1,200,000
1,078,000
122,000
104,222
1,200,000
1,078,000
122,000
104,222
1,200,000
1,078,000
122,000
104,222
1,200,000
1,078,000
122,000
104,222
1,200,000
1,078,000
122,000
104,222
1,200,000
1,078,000
122,000
104,222
10
-
10
23,000
14
23,000
13
23,000
14
23,000
13
23,000
13
23,000
13
23,000
13
23,000
13
23,000
13
23,000
0
75,000
-75,000
20.47%
0.05
35,377
114,256
78,878
0.07
18,356
28,307
9,951
0.09
9,446
13,352
3,907
0.11
4,456
5,160
704
0.12
2,277
2,434
157
0.14
1,074
1,148
74
0.16
507
542
35
0.17
239
255
16
0.18
113
120
8
0.2
53
57
4
Cost
Employment Creation
Operational Cost
Maintenance
Labor Cost
Total Cost
Environmental Cost
Preserving biodiversity landscape
Depreciation
Cash Inflow
Cash Outflow
Benefit
Net Benefit
Economic Benefits (Additionality)
Income for Local Communities
Additional Jobs
Additional Labor Income/ Capita
Outcomes benefit
Net Benefit Without Project
Net Benefit With Project
Net Benefit
ERR
56
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