Off-Grid Regulation: How to Provide Cost-effective and Sustainable Rural Energy Services in Remote Areas of Developing Cou...
Summary <ul><li>1. Status of off-grid regulation and rural electrification in developing countries </li></ul><ul><li>2. Em...
Part 1. Current Status  <ul><li>Status of off-grid regulation and rural electrification in developing countries </li></ul>...
Electrification rate by region
Number of people without electricity is far from decreasing…
High disparity between continents
Why rural electrification is lagging in some part of the world?  <ul><li>(1) Historical reasons/demographic impact </li></...
Self-perpetuating logic  <ul><li>Due to limited resources, demographic trend, political pressure, … “conventional” utiliti...
Vicious circle resulting of lack of regulation    power reform?  Lack of investment   in network and rural areas   Poor m...
Part 2. Cost-effective delivery models  <ul><li>Status of off-grid regulation and rural electrification in developing coun...
New forms of electrification  <ul><li>Against the bias in favour of centralised systems, mini-grids </li></ul><ul><li>& ho...
Source: World Bank/ESMAP, 2008.
Particular interest of utilities with solar <ul><li>Reduction of the cost / W p  of more than 80% since the 1980s of the s...
Grid PV compete with conventional energies?
How rural areas could benefit from new technologies? <ul><li>Paradox of solar energy: in rural areas of developing countri...
Change of paradigm for renewable energy  Source: Annual Rev. Ener. Envt, 2002
Toward a new generation of projects? <ul><ul><li>1) First generation of projects funded by aid </li></ul></ul><ul><ul><li>...
Large-scale dissemination and regulation <ul><li>(Un)regulated competitive private sector (regulation /  quality ) </li></...
Cash sales models in Kenya  <ul><li>Advantages of direct sales  </li></ul><ul><ul><li>Base of 100’s of owner shops who can...
Credit sales model in Indonesia  <ul><li>E.g. company called Sudimara Energi </li></ul><ul><ul><li>More than 30,000 system...
Fee for service – Utility model (“ESCOs”) <ul><li>Government gives a subsidy to an enterprise to buy PV solar systems & in...
Rural Concessions in South Africa
Rural electrification in South Africa <ul><li>Massive rural electrification effort since 1994, end of apartheid. </li></ul...
NuRa Concession in Kwazulu Natal   <ul><li>The biggest and most successful concession </li></ul><ul><li>Very large concess...
Part 3.  Conclusions <ul><li>Status of off-grid regulation and rural electrification in developing countries </li></ul><ul...
Appropriate regulation for off-grid <ul><li>Light-handed approach </li></ul><ul><ul><ul><ul><li>Avoid over-regulation: reg...
Case of Bolivia: Recognition of the impossibility of implementing conventional regulation  <ul><li>Working paper from ESMA...
Appropriate planning and  design of  rural delivery schemes <ul><li>Technology neutral with an “optimal” combination of:  ...
Technology neutral:  combination of various technologies  <ul><li>Not just one source of energy, but a combination of ener...
Combination of mini-grid  & individual systems   Minimum costs  Source: WordPower, 2000
Long term comparison of total costs High operating costs Diesel systems  Solar Home Systems  High investment costs Low ope...
Implement institutions to solve the questions of high investment costs in rural areas and long-term maintenance N+20 $ Red...
Institutional arrangement Rural electrification agency   / fund   (Function of) independent regulator ESCOs ESCOs  FUNCTIO...
Central role of rural electrification agency <ul><li>Integrated planning </li></ul><ul><ul><ul><li>Energy surveys </li></u...
Small versus Large companies? Status :  Interest of having separate entities for rural electrification for decentralised  ...
Code of practices, standards, training <ul><li>Regulators can refer to already existing materials in other countries: </li...
Tariff setting  <ul><li>Kind of tariff </li></ul><ul><ul><li>Flat tariff for individual systems </li></ul></ul><ul><ul><li...
Elements of conclusion  <ul><li>New institutions / new way of thinking  </li></ul><ul><ul><ul><li>Market-driven (and not j...
References to go further <ul><li>Electrification and Regulation: Principles and a Model Law Discussion Paper No. 18 by Kil...
  SERN  <ul><li>For more information, our webpage: please click SERN on the REEEP website  http://www.reeep.org/ </li></ul...
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Webinar - Off grid regulation - How to Provide Cost-effective and Sustainable Rural Energy Services in Remote Areas of Developing

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In remote areas of developing countries, access to sustainable energy systems remains often unaffordable for inhabitants. Therefore, special energy supply models and regulatory frameworks adapted to the context of off-grid rural areas need to be implemented to support the dissemination of these systems.

This presentation explores how regulators can set a framework for cost-effective and sustainable rural energy services in remote areas. Energy supply models in rural areas can rely on various forms of ownership. Notably, it seems that a well-articulated public-private partnership can contribute to deliver cost-effective energy services.

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  • Webinar - Off grid regulation - How to Provide Cost-effective and Sustainable Rural Energy Services in Remote Areas of Developing

    1. 1. Off-Grid Regulation: How to Provide Cost-effective and Sustainable Rural Energy Services in Remote Areas of Developing Countries? Leonardo Webinar – 29 th May 2009 Dr. Xavier LEMAIRE, Research Fellow Centre for Management under Regulation, Warwick Business School Sustainable Energy Regulation Network/REEEP
    2. 2. Summary <ul><li>1. Status of off-grid regulation and rural electrification in developing countries </li></ul><ul><li>2. Emerging forms of rural decentralised electrification & case studies </li></ul><ul><li>3. Main features of off-grid regulation framework </li></ul>
    3. 3. Part 1. Current Status <ul><li>Status of off-grid regulation and rural electrification in developing countries </li></ul><ul><li>Emerging forms of rural decentralised electrification & case studies </li></ul><ul><li>Main features of a off-grid regulation framework </li></ul>
    4. 4. Electrification rate by region
    5. 5. Number of people without electricity is far from decreasing…
    6. 6. High disparity between continents
    7. 7. Why rural electrification is lagging in some part of the world? <ul><li>(1) Historical reasons/demographic impact </li></ul><ul><li>(2) Lack of financial resources/“political commitment” </li></ul><ul><ul><ul><li>Rural inhabitants far from decision-makers </li></ul></ul></ul><ul><li> Bias in favour of extension of the grid (1) + (2) </li></ul><ul><ul><li>Priority to urban areas </li></ul></ul><ul><ul><li>Remote areas with low density : out of reach </li></ul></ul>
    8. 8. Self-perpetuating logic <ul><li>Due to limited resources, demographic trend, political pressure, … “conventional” utilities tend “naturally” to focus on electrification of areas with high density/high income where they can sale electricity produced with conventional energy sources </li></ul><ul><li>“ Conventional” utilities “naturally” ignore areas difficult to reach, where income can be very low and electricity has to be produced by decentralised systems </li></ul><ul><ul><ul><ul><li>High operating costs / logistic difficulties </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Systems with RET out of their field of knowledge </li></ul></ul></ul></ul><ul><li>(Poor) regulation/ (weak) institutions and policies for centralised system and ignore small decentralised generation anyway </li></ul><ul><ul><ul><ul><li>Rural inhabitants “in the dark” </li></ul></ul></ul></ul><ul><ul><ul><ul><li>OR unregulated electrification of remote areas by small private investors </li></ul></ul></ul></ul><ul><li>Privatisation/unbundling/transparency/tariff </li></ul><ul><ul><ul><ul><li>= de-politicisation of the electricity sector </li></ul></ul></ul></ul>
    9. 9. Vicious circle resulting of lack of regulation  power reform? Lack of investment in network and rural areas Poor maintenance Poor quality of service/pricing Lack of control Unauthorised Connection / Low energy tariff = Non efficient energy appliances Lack of financial return for electric companies Increase of consumption = increase of financial gap Priority power generation in urban areas Consumption subsidised
    10. 10. Part 2. Cost-effective delivery models <ul><li>Status of off-grid regulation and rural electrification in developing countries </li></ul><ul><li>Emerging forms of rural decentralised electrification & case studies </li></ul><ul><li>Main features of an off-grid regulation framework </li></ul>
    11. 11. New forms of electrification <ul><li>Against the bias in favour of centralised systems, mini-grids </li></ul><ul><li>& home systems can be implemented in different ways. </li></ul><ul><li>Different typologies according to: </li></ul><ul><ul><li>The technology used </li></ul></ul><ul><ul><li>The form of ownership </li></ul></ul><ul><ul><li>The delivery model </li></ul></ul><ul><li>Matrix quite complex – we will focus on regulation of some combination of technology/ownership/delivery model </li></ul>
    12. 12. Source: World Bank/ESMAP, 2008.
    13. 13. Particular interest of utilities with solar <ul><li>Reduction of the cost / W p of more than 80% since the 1980s of the solar panels from the manufacturers. Current growth rate of the photovoltaic market + 40%/year </li></ul><ul><ul><li>BUT photovoltaic panels only part of the cost (40/50%) </li></ul></ul><ul><ul><li>against batteries (20%) </li></ul></ul><ul><ul><li>and installation costs (30-40%) </li></ul></ul><ul><li>Cost decreasing but still quite high initial investment ( 500-1000 US$ for a 50 W p system) if it has to be borne by end-users. </li></ul><ul><li>Solar interesting in remote areas/scattered houses for low loads compared to: </li></ul><ul><ul><li>Candles, paraffin - quality of light with PV is superior </li></ul></ul><ul><ul><li>Diesel generators - mechanical parts and cost of fuel </li></ul></ul><ul><ul><li>Connection to the grid - high costs of extending the grid and connection </li></ul></ul>
    14. 14. Grid PV compete with conventional energies?
    15. 15. How rural areas could benefit from new technologies? <ul><li>Paradox of solar energy: in rural areas of developing countries where it could be very useful – solar remains quite expensive </li></ul><ul><li>Design institutional and regulatory framework </li></ul><ul><ul><li>Public-private partnership </li></ul></ul><ul><ul><li>Overcome barriers of up-front costs </li></ul></ul><ul><ul><ul><li>Access to specific sources of funding </li></ul></ul></ul><ul><ul><ul><li>Rural electrification  subsidies </li></ul></ul></ul><ul><ul><li>Reduce costs of installation & maintenance </li></ul></ul><ul><ul><ul><li>Clear definition of who is responsible of systems and monitoring </li></ul></ul></ul><ul><ul><li>Find good combination old & new technologies </li></ul></ul><ul><ul><ul><li>Integrated energy services </li></ul></ul></ul><ul><ul><li>Long-term commitment of public authorities </li></ul></ul><ul><ul><ul><li>Stable regulatory framework </li></ul></ul></ul><ul><ul><ul><li> Maximise the positive impact of new modern energies </li></ul></ul></ul>
    16. 16. Change of paradigm for renewable energy Source: Annual Rev. Ener. Envt, 2002
    17. 17. Toward a new generation of projects? <ul><ul><li>1) First generation of projects funded by aid </li></ul></ul><ul><ul><li>transfer of technology  passivity of receptors </li></ul></ul><ul><ul><ul><ul><li>Renewable systems were given </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Not maintained by local beneficiaries of aid </li></ul></ul></ul></ul><ul><ul><li>2) New generation of projects </li></ul></ul><ul><ul><li>Energy just a technical problem? </li></ul></ul><ul><ul><ul><ul><li>Social needs (not just kWh!) </li></ul></ul></ul></ul><ul><ul><ul><ul><li> To provide a service (not just to sell & install a product) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Maintenance of systems even if the cost is low has to be borne by the end-users </li></ul></ul></ul></ul><ul><ul><ul><ul><li> Clients selected = purchasing power </li></ul></ul></ul></ul><ul><ul><ul><ul><li> Selection of local entrepreneurs </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Market-driven (and not just donor-driven) </li></ul></ul></ul></ul><ul><ul><ul><ul><li> Institutions and organisation of the market </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li> Regulation </li></ul></ul></ul></ul></ul><ul><ul><li>Far larger scale than previous projects </li></ul></ul><ul><ul><li>  Economies of scale and density </li></ul></ul><ul><ul><li>  Standards </li></ul></ul>
    18. 18. Large-scale dissemination and regulation <ul><li>(Un)regulated competitive private sector (regulation / quality ) </li></ul><ul><li>“ dealer sales model” </li></ul><ul><ul><ul><li>Kenya +200,000 SHS BUT quality? </li></ul></ul></ul><ul><ul><ul><li>Sri Lanka (micro-credit), China, Vietnam, Indonesia, India, Bangladesh </li></ul></ul></ul><ul><li>Regulated rural energy services concessions (regulation / price + quality ) </li></ul><ul><li> “ fee for service model” </li></ul><ul><ul><li>Photovoltaic </li></ul></ul><ul><ul><ul><li>South Africa currently 35,000 / target: 300,000 SHS; Zambia </li></ul></ul></ul><ul><ul><li>Hybrid </li></ul></ul><ul><ul><ul><li>Morocco (+80,000 target: 150,000), Argentina (+70,000), Peru, Bolivia, Dominican Republic (+5,000?), Benin, Togo, Cap Verde, Namibia, Senegal,… </li></ul></ul></ul><ul><li>TOTAL world wide +2,400,000 households </li></ul>
    19. 19. Cash sales models in Kenya <ul><li>Advantages of direct sales </li></ul><ul><ul><li>Base of 100’s of owner shops who can or not install the system </li></ul></ul><ul><ul><li>More than 200 000 SHS installed but very small systems 10-14 Wp </li></ul></ul><ul><li>Limits </li></ul><ul><ul><li>Only a minority (5% of rural inhabitants) can afford to buy directly a system without credit </li></ul></ul><ul><ul><li>People buy the cheapest components – size too small so customers not satisfied </li></ul></ul><ul><ul><li>Installation is not properly done leading to low system performance from the start and lack of maintenance leads to early system failure </li></ul></ul>
    20. 20. Credit sales model in Indonesia <ul><li>E.g. company called Sudimara Energi </li></ul><ul><ul><li>More than 30,000 systems installed </li></ul></ul><ul><ul><li>Company install 50 Wp systems and provide maintenance contracts by trained technicians so systems function and provide reliable electricity </li></ul></ul><ul><ul><li>Credit reimbursed in 4 years – more than 95% repaid </li></ul></ul><ul><ul><li>Costs systems remain low as manufactured in Indonesia </li></ul></ul><ul><li>Main lessons </li></ul><ul><ul><li>Loan and maintenance by the same company who install the system and has a direct interest to keep them running to keep customers satisfied and get them pay the credit </li></ul></ul>
    21. 21. Fee for service – Utility model (“ESCOs”) <ul><li>Government gives a subsidy to an enterprise to buy PV solar systems & install them in the houses of their clients </li></ul><ul><li>Clients pay a monthly fee to get the small utility to maintain the PV solar systems for them. </li></ul><ul><li>This kind of scheme helps to solve the question of up front cost and the question of maintenance unlike a simple loan </li></ul><ul><li>It helps also to centralise decisions and aggregate environmental benefits of individual systems (bulk purchase, CDM), facilitate also enforcement of standards and codes of practices and therefore lower costs of systems for users </li></ul>
    22. 22. Rural Concessions in South Africa
    23. 23. Rural electrification in South Africa <ul><li>Massive rural electrification effort since 1994, end of apartheid. </li></ul><ul><li>More than 2.5 million households connected to the grid BUT more than 1.5 million households in remote areas unlikely to be connected. </li></ul><ul><li>Concessionaire fee for service with solar photovoltaic has been adopted in 1999 to install more than 300,000 Solar Home Systems. </li></ul><ul><li>Currently 5 concessions, only 34,000 SHS. Subsidies for extension stopped while other PV projects (schools, health centres). </li></ul><ul><li>Project initially monitored by the national regulator, now Department of Mineral and Energy. </li></ul>
    24. 24. NuRa Concession in Kwazulu Natal <ul><li>The biggest and most successful concession </li></ul><ul><li>Very large concession of 10.000 Km 2 with 11.000 Solar Home Systems </li></ul><ul><li>Multi energy stores (LPG + Solar electricity) </li></ul><ul><li>Economies of scale and more than 70 jobs created </li></ul><ul><li>BUT loose proximity with clients and delay in maintenance </li></ul><ul><ul><li>good human resource management </li></ul></ul><ul><ul><li>Software + system of reporting + GPS </li></ul></ul><ul><li>Complaints mainly linked: </li></ul><ul><ul><li>To small size of the systems (no colour TV! no cooking!) </li></ul></ul><ul><ul><li>Cost of the fee (4-8 US dollars) even subsidised remain high for rural people </li></ul></ul><ul><ul><li>Understanding of the contract? Question of ownership of the systems </li></ul></ul><ul><li>Difficulties linked to : </li></ul><ul><ul><li>Lack of coordination with grid authorities </li></ul></ul><ul><ul><li>Differentiated fees due to non-homogeneous interpretation of free tariff </li></ul></ul><ul><ul><ul><li>Fees can vary according to the policy of the municipalities who give or not a subsidy (Free Basic Electricity for first 50 kWh/month) (since 2007 Free Basic Alternative Electricity of 55 R) </li></ul></ul></ul><ul><ul><li>Lack of continuous support </li></ul></ul><ul><ul><ul><li>No more/limited subsidies to buy new systems and increase the number of systems managed </li></ul></ul></ul>
    25. 25. Part 3. Conclusions <ul><li>Status of off-grid regulation and rural electrification in developing countries </li></ul><ul><li>Emerging forms of rural decentralised electrification & case studies </li></ul><ul><li>Main features of an off-grid regulation framework </li></ul>
    26. 26. Appropriate regulation for off-grid <ul><li>Light-handed approach </li></ul><ul><ul><ul><ul><li>Avoid over-regulation: regulation of small utilities <> large utilities </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Licensing procedures & control </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Protect small utilities against encroachment/expansion of large utilities or compensation </li></ul></ul></ul></ul><ul><li>Long-term integrated socio-economic comparisons </li></ul><ul><ul><ul><ul><li>Lifetime of the project: 20/30 years (life-cycle project) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Renewable systems compared to hybrid solutions or connection to the network </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Rising operating costs and risk linked to conventional energies </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Least cost planning (demand versus supply)  energy efficiency </li></ul></ul></ul></ul><ul><li>Consumer awareness </li></ul><ul><ul><ul><ul><li>What RE can do and cannot do compared to grid connection </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Level of expectation of end-users </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Energy efficiency measures </li></ul></ul></ul></ul><ul><li>Adapted standards </li></ul><ul><ul><ul><ul><li>High standards = high costs </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Compromise with what is really needed </li></ul></ul></ul></ul><ul><li>Importance of correct tariff setting </li></ul><ul><ul><ul><ul><li>High inflation in some countries  Annual revision </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Taxes, custom duties at the same level as conventional energies or less </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Tariff to cover at least operating costs without subsidies </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Subsidies only for % of capital costs > or = the one given for grid-connection </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Harmonisation of tariffs on a whole country? </li></ul></ul></ul></ul>
    27. 27. Case of Bolivia: Recognition of the impossibility of implementing conventional regulation <ul><li>Working paper from ESMAP/World Bank, 2006 </li></ul><ul><li>Before 2000, all operators of isolated village mini-grids above 300kW installed generating capacity were required to acquire concessions </li></ul><ul><li>BUT </li></ul><ul><ul><li>Concessions could only be granted to entities that were shareholder companies  /  2/3 of mini-grids operated by cooperatives </li></ul></ul><ul><ul><li>The reporting requirement and technical standards were too costly to satisfy by small cooperatives </li></ul></ul><ul><ul><li>Better to have “light-handed” regulation than to have multiple unlicensed operators (security,…) </li></ul></ul><ul><li>Partial intermediate solution </li></ul><ul><li>Raise the threshold of regulation to 500 kW peak demand </li></ul><ul><li>Allow cooperatives to maintain their legal status for an initial period of 7 years </li></ul><ul><li>Discussion to lower reporting and technical requirements for all mini-grids with less than 2,000 users . </li></ul><ul><li>A possible proposed final regulation </li></ul><ul><li>Systems above 1 MW </li></ul><ul><ul><li>Regulated as before </li></ul></ul><ul><li>Systems between 300kW and 1 MW </li></ul><ul><ul><li>Fewer reporting requirement and less stringent service standards </li></ul></ul><ul><li>Systems under 300 kW </li></ul><ul><ul><li>No obligation for operators except to register themselves and provide a yearly update of basic information </li></ul></ul>
    28. 28. Appropriate planning and design of rural delivery schemes <ul><li>Technology neutral with an “optimal” combination of: </li></ul><ul><ul><ul><li>Centralised systems – grid </li></ul></ul></ul><ul><ul><ul><li>Decentralised / mini-grid systems / Individual systems </li></ul></ul></ul><ul><ul><ul><li>Market open to new entrants with new technologies </li></ul></ul></ul><ul><li>Focusing on sustainability in the long term of delivery of energy services (and not just kWh) </li></ul><ul><ul><ul><li>Appropriate level of financing of the operators </li></ul></ul></ul><ul><ul><ul><li>Maintenance of the energy systems  selection of operators: not lowest bid </li></ul></ul></ul><ul><ul><ul><li>Long-term homogenous & stable regulatory framework </li></ul></ul></ul><ul><li>Reduction of costs for end-users and funding agencies </li></ul><ul><ul><li>Organisation capable of evaluating local needs </li></ul></ul><ul><ul><ul><ul><ul><li>Subcontracted to consultants </li></ul></ul></ul></ul></ul><ul><ul><li>Rural electrification plan and strategy </li></ul></ul><ul><ul><li>Organisation to monitor and evaluate the scheme </li></ul></ul><ul><ul><ul><ul><ul><li>Delegated/subcontracted to local NGOs, </li></ul></ul></ul></ul></ul>
    29. 29. Technology neutral: combination of various technologies <ul><li>Not just one source of energy, but a combination of energies </li></ul><ul><li>* Electricity </li></ul><ul><li>Small hydro / wind / biogaz / geothermal (when available) </li></ul><ul><li>Solar photovoltaic </li></ul><ul><ul><ul><ul><li>Intensity of solar radiation (5-6 kWh/m 2 ) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Low density of population in some areas </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Flexibility of the investment </li></ul></ul></ul></ul><ul><ul><ul><li>+ diesel generation as a complement (for productive use) and not necessarily main source: </li></ul></ul></ul><ul><ul><ul><ul><li>high operational costs / difficulty of supply of fuel and repair mechanical parts in remote areas </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Rising costs of energy & risk </li></ul></ul></ul></ul><ul><li>* Heat / cooking </li></ul><ul><ul><ul><li>LPG, biomass, SWH, solar cooking,… </li></ul></ul></ul><ul><li>Individual needs & productive use </li></ul><ul><ul><li>Precise evaluation of energy needs and their evolution </li></ul></ul><ul><ul><li>Fees and income generated locally, spatial location of energy needs </li></ul></ul><ul><ul><ul><li>SHS ideal for basic needs/low loads: light, radio, TV, mobile phone </li></ul></ul></ul><ul><ul><ul><li>Solar for use with low/medium loads: solar pumps, schools, health centres… </li></ul></ul></ul><ul><ul><ul><li>Conventional energies for productive use / peak demand </li></ul></ul></ul>
    30. 30. Combination of mini-grid & individual systems Minimum costs Source: WordPower, 2000
    31. 31. Long term comparison of total costs High operating costs Diesel systems Solar Home Systems High investment costs Low operating costs Low investment costs = genset N+20 or even N+30 N+20 or even N+30 $ $ batteries Long-term integrated comparisons Life cycle costing
    32. 32. Implement institutions to solve the questions of high investment costs in rural areas and long-term maintenance N+20 $ Reduction of up front costs 1. Support mechanisms to reduce up-front costs / creation of rural funding agencies (subsidies, integrated planning) Spread up front costs <ul><li>2. Creation of organisations to spread the up-front costs and maintain systems </li></ul><ul><li>“ Banks”: Micro-credit / revolving credit / loan </li></ul><ul><li>Utilities: Fee for service / ESCOs,… </li></ul>
    33. 33. Institutional arrangement Rural electrification agency / fund (Function of) independent regulator ESCOs ESCOs FUNCTIONS Defines rules for competition (tariff for RE); Integrated planning; Standards Operational measures (energy surveys) and funding/bundling (loans, grants) notably CDM Install, collect fees AND guarantee functioning of sustainable energy systems Variety of approach possible for institutional design. But all functions needs to be covered and clear definition of who is responsible of what Delegation / sub-contracting? ESCOs Control standards and tariffs Control standards and tariffs x x x x xxx x x xx x x x x xx xxx xx x xxx x xx end-users Same entity responsible for installation AND maintenance of a system Regulation by the national electricity regulator with a specialised department OR Regulation by the government entity that provides installation subsidies complaints ? ?
    34. 34. Central role of rural electrification agency <ul><li>Integrated planning </li></ul><ul><ul><ul><li>Energy surveys </li></ul></ul></ul><ul><ul><ul><li>Socio-economic comparisons </li></ul></ul></ul><ul><li>Regulation </li></ul><ul><ul><ul><li>Tariff </li></ul></ul></ul><ul><ul><ul><li>Standards and codes of practices </li></ul></ul></ul><ul><li>Funding </li></ul><ul><ul><ul><li>Interlocutor of international agencies </li></ul></ul></ul><ul><ul><ul><li>Bundling small scale projects (Clean Development Mechanisms) </li></ul></ul></ul><ul><li>Monitoring and evaluation </li></ul><ul><li>Rural agencies </li></ul><ul><ul><ul><li>Central interlocutor of local utilities (and end-users) </li></ul></ul></ul><ul><ul><ul><li>Importance of permanent trained and dedicated staff </li></ul></ul></ul><ul><ul><ul><li>Importance of financial resources – own budget </li></ul></ul></ul><ul><ul><ul><li>Operating autonomy with rural electrification as primary objective </li></ul></ul></ul>
    35. 35. Small versus Large companies? Status : Interest of having separate entities for rural electrification for decentralised system. Cooperatives or local private companies or associations reactive; their survival linked to fees - National public utility? Grid ! <ul><li>Very small companies </li></ul><ul><li>(e.g. Zambia, Pacific) </li></ul><ul><li>50-150 clients each </li></ul><ul><li>900 US dollars/SHS </li></ul><ul><li>2-4/5 jobs </li></ul><ul><li>Only photovoltaic </li></ul><ul><ul><li>Specialised technicians </li></ul></ul><ul><ul><li>Low maintenance </li></ul></ul><ul><li> Cost of systems remain high </li></ul><ul><li> Proximity with the client </li></ul><ul><li> Customer basis limited </li></ul><ul><li> Fragile-only highest income </li></ul><ul><li>Large companies </li></ul><ul><li>(e.g. South Africa, Indonesia) </li></ul><ul><li>11,000 -30,000 clients each </li></ul><ul><li>550 US dollar/SHS </li></ul><ul><li>+ 70 jobs </li></ul><ul><li>Multi-energy </li></ul><ul><ul><li>LPG, paraffin,… </li></ul></ul><ul><ul><li>Other RE and diesel </li></ul></ul><ul><li> Reduction of costs? </li></ul><ul><li> Logistic difficulties </li></ul><ul><li> Complexity management </li></ul><ul><li>- Local stores </li></ul><ul><li>- System of reporting </li></ul><ul><li> Min break-even point? </li></ul>
    36. 36. Code of practices, standards, training <ul><li>Regulators can refer to already existing materials in other countries: </li></ul><ul><ul><li>photovoltaic </li></ul></ul><ul><ul><li>solar heater installations </li></ul></ul><ul><li>Regulation of the market has a tremendous impact for limited cost </li></ul><ul><ul><li>Avoid sub-standards products or installation </li></ul></ul><ul><ul><li>Guarantee consumer satisfaction </li></ul></ul><ul><li>Important to monitor / regulate effectively the market </li></ul><ul><ul><li>Periodic control </li></ul></ul><ul><ul><li>Staff specialised on rural electrification </li></ul></ul><ul><ul><ul><li>Specialised department of the regulatory body </li></ul></ul></ul><ul><ul><ul><li>Or can be left to the rural electrification agency </li></ul></ul></ul><ul><ul><ul><li>Or subcontracted (regulation by contract) </li></ul></ul></ul><ul><li>Awareness and training are fundamental part </li></ul><ul><ul><li>Regulators, technicians, end-users </li></ul></ul><ul><ul><li>Get local institutions involved (universities, NGOs,…) </li></ul></ul>
    37. 37. Tariff setting <ul><li>Kind of tariff </li></ul><ul><ul><li>Flat tariff for individual systems </li></ul></ul><ul><ul><li>Metering systems when connected to collective central system </li></ul></ul><ul><li>Offer : importance of cost recovery for sustainability of business </li></ul><ul><ul><li>Operating costs of utilities </li></ul></ul><ul><ul><ul><li>Needs to be covered ! public subsidies for investment costs only ! </li></ul></ul></ul><ul><ul><ul><li>Importance of creation of provision/batteries fund for solar </li></ul></ul></ul><ul><ul><li>Part of investment costs? </li></ul></ul><ul><ul><ul><li>If yes, utilities can expand to new customers </li></ul></ul></ul><ul><ul><ul><li>If not, continuous public subsidies are needed for expansion </li></ul></ul></ul><ul><li>Demand : tariff that can be afforded by end-users </li></ul><ul><ul><ul><li>Survey of structure of incomes </li></ul></ul></ul><ul><ul><ul><li>% of the inhabitants of an area to be reached </li></ul></ul></ul><ul><li>Procedure for annual revision </li></ul><ul><ul><ul><li>Inflation rate </li></ul></ul></ul><ul><ul><ul><li>Rate of exchange / US dollar (imported components) </li></ul></ul></ul><ul><ul><ul><li>Capacity of payment of end-users (income of inhabitants not necessarily indexed to inflation) </li></ul></ul></ul>
    38. 38. Elements of conclusion <ul><li>New institutions / new way of thinking </li></ul><ul><ul><ul><li>Market-driven (and not just donor-driven) </li></ul></ul></ul><ul><ul><ul><li>Training is crucial (at every level) </li></ul></ul></ul><ul><li>… with regulation for new actors </li></ul><ul><ul><ul><li>Adapted to small companies = introduce new actors </li></ul></ul></ul><ul><ul><ul><li>Limit the power market of existing utilities </li></ul></ul></ul><ul><ul><ul><li>Rural electrification depoliticised (independence and transparency) </li></ul></ul></ul><ul><li>… framed by a real long-term energy strategy/policy </li></ul><ul><ul><ul><li>Long-term commitment of the government </li></ul></ul></ul><ul><ul><ul><li>Energy + industrial policy + local development </li></ul></ul></ul><ul><ul><ul><li>Nurse a market = create jobs locally and nationally / local expertise </li></ul></ul></ul>
    39. 39. References to go further <ul><li>Electrification and Regulation: Principles and a Model Law Discussion Paper No. 18 by Kilian Reiche, Bernard Tenenbaum, and Clemencia Torres de Mästle. World Bank, Energy and Mining Sector Board, July 2006. World Bank </li></ul><ul><li>http://siteresources.worldbank.org/INTENERGY/Resources/EnergyPaper18.pdf </li></ul><ul><li>Decentralised Rural Electrification, C. De Gouvello et Y.Maigne, Systemes Solaires, 2002. </li></ul><ul><li>Integrated Rural Energy Utilities – A review of literature and opportunities for the establishment on an IREU, REEEP – Restio Energy, July 2008. </li></ul><ul><li>NuRa Indepth Case study – Integrating further?, REEEP – Restio Energy, March 2009. </li></ul><ul><ul><li>Financing Off-grid PV, by J.P Ross, Centre for Resource Solutions, 2001. </li></ul></ul><ul><ul><li>Rural Electrification in the Developing World: A Summary of Lessons from Successful Programs, by Douglas Barnes and Gerard Foley, Esmap – World Bank, 2004. </li></ul></ul><ul><ul><li>… </li></ul></ul><ul><ul><li>Solar photovoltaic softwares, standards,… </li></ul></ul>
    40. 40. SERN <ul><li>For more information, our webpage: please click SERN on the REEEP website http://www.reeep.org/ </li></ul><ul><li>Group on off grid regulation and rural electrification in the member part where you can find the references used in this presentation (membership = just need to create a password) </li></ul><ul><li>Contact: Dr Xavier LEMAIRE </li></ul><ul><ul><li>Centre for Management under Regulation </li></ul></ul><ul><ul><li>Warwick Business School CV4 7AL Coventry (UK) </li></ul></ul><ul><ul><li>[email_address] </li></ul></ul>

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