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Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
Analysis of Electricity Tariffs in Africa
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Analysis of Electricity Tariffs in Africa

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This session is part of the Clean Energy Regulators Initiative Webinar Programme. …

This session is part of the Clean Energy Regulators Initiative Webinar Programme.

Theme 9 - Energy Access

Module 5: Analysis of Electricity Tariffs in Africa

This session has several purposes:

Review electricity tariff structures in Africa;
Assess tariffs in terms of long-term financial viability for the electricity sector and ability to attract capital;
Offer suggestions to evolve to a healthier and more attractive tariff structure.

Countries analyzed: Kenya, Cape Verde, Ghana, Tanzania, and Senegal.

Overall findings:

Strong growth in electricity demand
Network losses very high
Financial performance distribution utilities low
Loss reduction important

Tariffs should be set at economic levels but incorporate reasonable level of losses, while utilities should work on significant reduction of losses. Regulatory policies should incentivize such improvements.

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  • 1. Tariff Structures for Sustainable Electrification in Africa Webinar prepared for the European Copper Institute Presenter: Dr. Viren Ajodhia 1 DNV GL © 2013 SAFER, SMARTER, GREENER
  • 2. Agenda  Project purpose  Approach  Country case studies – Kenya – Cape Verde – Ghana – Tanzania – Senegal  Conclusions & Recommendations DNV GL © 2013 2
  • 3. Project purpose 1. Review the tariff structures in representative countries in Africa 2. Assess these tariffs in terms of the long-term financial viability for the electricity sector and their ability to attract capital 3. Offer suggestions regarding how to evolve to a healthier and more attractive tariff structure DNV GL © 2013 3
  • 4. Approach DNV GL © 2013 4
  • 5. Approach – Define customer categories  DNV KEMA defined four customer categories based on a review of national load profiles Source: DNV GL DNV GL © 2013 5
  • 6. Approach – Focus on Main Tariff Elements  Some tariff elements are based on rather specific criteria and complex pricing schemes, but represent only a minor share of total grid charges  Overview of tariff elements that have been included in or excluded from the analysis: Source: DNV GL DNV GL © 2013 6
  • 7. Approach – Tariff Comparisons  Comparisons made at the level of the end-user tariff, due to relatively limited unbundling of the electricity sector in Africa (i.e. between generation, transmission, distribution and supply)  Includes the costs of all government fees such as environmental taxes, et cetera but excludes costs of Value Added Taxes (VAT)  Comparison Basis – All prices converted into EUR per kWh – Average price for each of the four customer groups – Domestic, Small Commercial, Large Commercial, Industrial DNV GL © 2013 7
  • 8. Approach – Financial Performance  Return on Capital (ROC; pre-tax nominal) used as overall indicator of financial performance  Type of Analysis – Assessment of tariff adjustments for utility to break-even – Assessment of tariff adjustments for utility to get Rate of Return of 10% (assumed as starting point for financial healthy performance) 8 DNV GL © 2013
  • 9. Country Case Studies DNV GL © 2013 9
  • 10. General  Country studies of: – Kenya – Cape Verde – Ghana – Tanzania – Senegal 10 DNV GL © 2013
  • 11. Kenya  Population – 41 million  GDP – 32 billion USD (2010)  16-18% of the Kenyan population has access to electricity  Network losses is around 19%  energy demand forecast: from 7.4 TWh in 2009 to 92 TWh in 2030. This corresponds to an annual increase of 12.8%  Power generation capacity largely dependent upon hydropower; Highly sensitive to weather conditions  Tariffs are set in a relative independent manner with automatic adjustments for fuel, inflation, and exchange rates Sources: CIA World Factbook and LCPDP by Energy Regulatory Commission, March 2010 11 DNV GL © 2013 Source: DNV GL
  • 12. Kenya – Calculation of average and required tariffs  Kenya Power achieves relatively healthy results with current tariffs generating ROC of 8.5% in 2010/2011  If a ROC of 10% were to be reached, tariffs would have to increase with 1.8% Source: DNV GL  Potential for higher returns through reduction of losses Source: http://www.kplc.co.ke 12 DNV GL © 2013
  • 13. Cape Verde  Population – 516,000  GDP – 1.65 billion USD (2010)  Electrification in rural areas over 95%  Network losses 26%  Installed capacity is approximately 116 MW, including 25 MW of wind power and 7.5 MW of solar power. The remaining share is generated by diesel power stations spread across the islands  Dispersed islands and their inherently small power stations have resulted in high electricity costs  No ‘Industrial consumption category’ according to DNV GL grouping, due to lack of HV grid Sources: CIA World Factbook and World Bank, 2011 13 DNV GL © 2013
  • 14. Cape Verde – Calculation of average and required tariffs  ROC of minus 10.5% means the financial prospects of Electra are precarious  For a break-even result, tariffs would have to be increased by 11.0% and even by 21.6% to achieve a ROC of 10% Source: DNV GL  Potential for higher returns through reduction of losses 14 DNV GL © 2013
  • 15. Ghana  Population – 24.8 million  GDP – 38.6 billion USD (2011)  Electrification is about 72%  Network losses 27%  Installed capacity is 2,186 MW at the end of 2010 and consisted of hydroelectric power (1,180 MW) and thermal power (1,006 MW)  The power market consists of a regulated and a deregulated part – The regulated market is made up of all customers who are not bulk customers of electricity and is subject to regulated prices – Bulk customers can negotiate power prices directly with power producers (deregulated) Sources: Ghana Ministry of Energy and Electricity Company Ghana, 2010 /2011; Public Utilities Regulatory Commission (PURC) 15 DNV GL © 2013
  • 16. Ghana – Calculation of average and required tariffs  ROC of 2.4% means tariffs are currently above the break-even level  Tariffs would have to increase by 13% to reach a ROC of 10%  There is a very high tariff for the small commercial group. This suggests some degree of cross-subsidy to other consumer groups Source: DNV GL  Potential for higher returns through reduction of losses 16 DNV GL © 2013
  • 17. Tanzania  Population – 42.7 million  GDP – 38.6 billion USD (2011)  Electrification is about 14%  Network losses 24.3%  Installed capacity: 887 MW; available capacity: 660 MW in 2010, consisting of hydroelectric and thermal power – In 2010, 73% of total power was generated by the four hydropower stations – Severe droughts can reduce available generating capacity by 25 to 45%  260 MW of emergency power generation contracts have been signed since May 2011 Sources: Tanzanian Ministry of Energy and Minerals and Ministry of Finance and Economic Affairs, 2011; V. Mapoza (Frost & Sullivan), 2011 17 DNV GL © 2013
  • 18. Tanzania – Calculation of average and required tariffs  Current ROC is minus 7.2%  Overall tariffs would have to increase by 27% to achieve a breakeven situation and by 64% to achieve a ROC of 10% Source: DNV GL  Potential for higher returns through Loss reduction 18 DNV GL © 2013
  • 19. Senegal  Population – 13.0 million  GDP – 25.4 billion USD (2011)  Electrification is about 42%  Network losses 22%  Installed capacity: 700 MW in 2010, consisting of hydroelectric (10%) and thermal power (90%; diesel generators and gas turbines)  About 375 MW (2 power stations) in new, additional coal-fired capacity is being commissioned Sources: CIA World Factbook; IEA ‘World Energy Outlook 2010’; Senelec, 2011; African Development Bank, 2009; the Korean Times, 2012 19 DNV GL © 2013
  • 20. Senegal – Calculation of average and required tariffs  Tariffs are almost sufficient for Senelec to break-even, current ROC is -0.1%  Increase of 8.5% would be required to reach a ROC of 10% GL Source: DNV  Senegal’s tariff structure seems to be more cost reflective than others showing a clear reduction in prices for larger customers  Considerable increase in returns can be reached by reducing network losses. 20 DNV GL © 2013
  • 21. Conclusions DNV GL © 2013 21
  • 22. Conclusions – Strong Demand growth and potential Source: DNV GL 22 DNV GL © 2013
  • 23. Conclusions – Weak financial performance but large potential  Comparison of average tariff for domestic and industry versus realized rate of return. The size of the bubble represents the level of network losses EU: 0.13 EUR/kWh Reference Source: DNV GL 23 DNV GL © 2013
  • 24. Conclusions – Possible impact of loss reduction  Tariff increase to achieve 10% ROR – Scenario 1: Network losses remain the same – Scenario 2: Network losses reduced to benchmark of 12% Source: DNV GL 24 DNV GL © 2013
  • 25. Conclusions  The country reviews identified a number of commonalities which seem to be characteristic for the Sub-Saharan countries in general: – Strong growth in electricity demand – High potential in demand – Low financial performance – Very high network losses  Loss reduction is an important means of achieving sustainability 25 DNV GL © 2013
  • 26. Recommendations  A proper balance between tariff policy and losses reduction strategies is required for achieving a sustainable investment in electricity networks: – Tariffs should be set at economic levels but incorporate a reasonable level of losses – Utilities should dedicate significant efforts towards the reduction of losses – Regulatory policy and incentives will be imperative 26 DNV GL © 2013
  • 27. Tariff Structures for Sustainable Electrification in Africa Webinar prepared for the European Copper Institute Dr. Viren Ajodhia Viren.Ajodhia@DNVGL.com +31648925401 www.dnvgl.com SAFER, SMARTER, GREENER 27 DNV GL © 2013

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