The setting up of a Rural Energy Fund (REF) supported by multiple donors is a key component of ESAP Phase 2. It leads on from the existing Interim Rural Energy Fund and aims to promote good governance and credible fund management in the rural energy sector. It will subsidise and support micro-hydro, solar energy and other rural electrification initiatives.

The Rural Energy Fund is supported by DANIDA, the governments of Norway and Nepal and other development partners. The administration of the fund will comply with Nepal’s rural energy policy and seeks to meet international standards in terms of efficiency and transparency. The REF will seek ISO certification during the first year of ESAP Phase 2.

Current REF statues state that the fund can provide subsidy for investment in mini-grid electrification (e.g. micro-hydro) and solar energy projects. After a coherent rural energy policy has been established and continued investment assured, the fund may diversify subsidy to a wider range of rural energy initiatives. The Fund will also work to improve access to credit for rural energy projects. Proposals for amending the REF statutes to include a provision to do this will be presented to the REF board at a future Joint Review meeting.

The REF operates in full compliance with the government’s National Subsidy Policy 2000 and the Subsidy Delivery Mechanism 2000. These statutes are currently under review and may be revised during ESAP Phase 2. If this happens, a Joint Review of the fund’s policy may be necessary to ensure continued compliance.