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Annual Project Report (APR)

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

Period covered: __11 July 31 December 2003__

PROJECT PERFORMANCE CONTRIBUTION TO THE PROJECT OBJECTIVE

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

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

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

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

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

Annual Outputs Update on outputs Reasons if progress Recommendations and


below target proposed action
1. Study, implemented, 1.1 Collecting of information The market and feasibility To finalize the Report on
including available for market analysis studies should have been market and feasibility
recommendations for and market plan; data on revised and updated by analysis by the end of
optimal set-up of solar boiler plants potential for October 31, 2003, but the January 2004.
panel production in solar heating plants, data on International Sub-Contractor The International
Uzbekistan potential consumers; requested to postpone the Subcontractor, RAMBOLL
information on national and deadline to the end of and a National Consultant
municipal investment January 2004. Since the on Market Studies.
strategy to water solar project started working in full
heating implemented and capacity only in August
the relevant reports and 2003, it was not considered
memos prepared realistic to analyze the
1.2 Gathering of information information and data
on the experience from Tacis collected and to update the
demonstration solar panel existing studies by October
projects, including technical 2003.
and economic indices, to
assess the market
development opportunities,
weaknesses and strengths
and efficiency of solar
panels operation,
implemented
1.3 Analysis of the
ecological situation and
assessment of thermal
energy impact on the
environment undertaken;
and proposal on selection of
potential sites to install solar
collectors developed

2. Factories adapted and 2.1 The optimal size of the


equipped with functional factory determined;
assembly lines to produce development of selection
solar panels criteria and competitive
selection of local
manufacturers implemented
2.2 Specifications for the
equipment prepared
2.3 International tenders
process started
2.4 Factory layout and
necessary renovations
designed
2.5 Factory/ies renovation
implemented

3. New design of solar Preliminary analysis of . The other activities planned


heating panels technical performance of to achieve the output will be
solar panels installed within implemented starting from
Tacis demonstration project the first quarter 2004 when
at Vodnik boiler house the winner of the tender will
undertaken to be a starting provide the list of equipment
point for new design of solar to be delivered
panels.

4. Capacities for The activities planned to


marketing, installation, achieve the output will be
operation and implemented starting from
maintenance of solar the first quarter 2004. These
panels strengthened activities depend on
installation, and
commissioning of the
equipment and
manufacturing of solar
panels

5. Marketing, distribution, The activities planned to


installation and operation achieve the output will be
of solar panels implemented starting from
implemented the first quarter 2004. These
activities depend on
installation, and
commissioning of the
equipment and
manufacturing of solar
panels

6. Strategy for replication 6.1 TOR for local company There are few local To select a company which
and policy adjustments to undertake a public companies that can meet is able to design and
developed awareness raising campaign the objectives of the public implement public awareness
on energy savings and awareness raising raising campaign on energy
alternative sources of campaign, i.e. combine the savings and alternative
energy developed; professional knowledge in energy sources.
competitive selection of local the sphere of renewable
companies launched energy sources and energy
savings and implement well
designed informational
campaign using the mass
media tools.
PROJECT PERFORMANCE IMPLEMENTATION ISSUES

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

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

LESSONS LEARNED

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

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

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