Minding the gap: World Bank's assistance to power shortage mitigation in the developing

                                 ...
Email address: gheffner@worldbank.org (G. Heffner)

1.      Introduction: power shortages and the World Bank

        Powe...
As part of its ongoing engagement the World Bank provides technical assistance

and advice on sustainable development and ...
convergence of a stalled deregulation effort leading to underinvestment in private

generation, and a lengthy drought caus...
should consider implementation time and sustainability of stop-gap measures such as

industrial shut-downs. This basic app...
Rationing in the form of load shedding is the most ubiquitous short-term “remedy”

for power shortages. Although easiest t...
consumption quotas that varied by rate class and assigned to individual customers based on

their normal billing cycle; (b...
company. The importance of including opportunities for large customers to engage in

consumption entitlement trading was u...
South Korea, and Taiwan. Under the right conditions and with the right rate design a TOU

tariff can shift as much as 10 p...
ministries in over a dozen countries and has provided advice, assistance and grants and

lending to support investment in ...
needed for capacity reductions – requires coordinated supply sourcing, distribution network

creation, and aggressive mark...
channels need to be created, or existing ones modified to serve a new purpose. Consumer

awareness is crucial, both to cre...
CFL and the characteristics of the power network. For example, the power factor of a CFL

can be improved towards unity fo...
5.     Case Studies

       Four brief case studies are offered to illustrate the variety of power shortages

affecting di...
electricity more efficiently… in your homes and your place of business… in every aspect of

your life…save power for your ...
schedule but priority loads (e.g. hospitals, police), spared; .and (b) a “Quota System”, in

which each customer was oblig...
The power shortage began in 2004 when a severe regional drought lowered the

level of Lake Victoria, reducing available hy...
the technical specifications developed through IFC’s ELI activity and approved by the

Uganda Bureau of Standards. Actual ...
forced to factor self-generation into development of new projects. In the meantime Eskom

has proposed a number of major d...
the power shortage and its negative impact on the economy and quality of life. Therefore,

an effective power shortage mit...
4. Power shortages call for a centralized approach to planning and implementation and the

      capacity to take tough po...
Lawrence Berkeley National Laboratory, 2002. See also:

http://eetd.lbl.gov/ea/EMS/reports/49733.pdf

[5]    Maurer, L. Co...
http://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/p_ELI/

$FILE/ELI_FINAL.PDF

[12]   The World Bank. Scalin...
Figure 1: Botswana capacity outlook




                                      Page 24
Figure 2: Residential energy savings results during the 2001 power crisis in Brazil




                                  ...
Tubes
                                  11%
                     Energy
                     savers
                      ...
Table 1: Notable power shortages since 2000 – developed and developing economies
Country/Region/State Vintage             ...
Table 2: Diagnosing power shortages
Type of               Acute                             Long-lasting
Shortfall
       ...
Table 3: Evaluating alternative rationing strategies
     Rationing                    Advantages                   Disadv...
Table 4: Energy conservation actions taken by households in response to Brazilian
rationing [3]




                      ...
Table 5: Some indicative bulk CFL programs in developing countries
Region/       CFL Program Goal      Program Design     ...
Table 6: Botswana Power Company capacity shortage mitigation strategies
Strategy                          Expected peak lo...
Table 7; Quota allocation by customer type in the Brazilian rationing scheme




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Minding The Gap World Banks Assistance To Power Shortage Mitigation In The Developing World

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Minding The Gap World Banks Assistance To Power Shortage Mitigation In The Developing World

  1. 1. Minding the gap: World Bank's assistance to power shortage mitigation in the developing world G. Heffnera,*, L. Maurer a,, A. Sarkar a,, X. Wang a, a, The World Bank, 1818 H Street, NW Washington DC 20433 Abstract This paper describes the World Bank’s technical assistance and lending efforts in support of developing countries facing power shortages. The paper reviews the World Bank’s experience in helping governments to mitigate power shortages in Africa, South Asia, East Asia, and Latin America regions. The paper stresses the need to evaluate and appreciate the scope of and solution to each power “crunch” on an individual basis, and describes the process used in diagnosing a shortage situation and prescribing mitigation strategies. Several brief case studies are presented, including Botswana, Brazil, Uganda, and South Africa. The political and customer-centric dimensions of power shortage mitigation are briefly described, with suggestions for minimizing the socio-economic impacts of power shortages on the urban and rural poor. The paper concludes that a supply- demand portfolio approach works best, and within the portfolio a mix of market-based rationing, emergency mobilization of customer-owned generation, interruptible rates, load control, and energy efficient lighting should be sought. Although the best formulation will vary according to market structure, demand composition, and nature of the crisis, World Bank practitioners have found one program that works almost everywhere to produce fast results – mass market Compact Fluorescent Lamp (CFL) replacement programs. * Corresponding author. Tel +1 XXXX; fax: +1 301 330 0141. Page 1
  2. 2. Email address: gheffner@worldbank.org (G. Heffner) 1. Introduction: power shortages and the World Bank Power shortages are a fact of everyday life in many parts of the world. Even developed countries are subject to power shortages; however, these are usually short-lived (weeks or months) affairs. In developing countries, especially in regions like Africa, it can take several years for new generating capacity to be constructed or for the contributing factors (e.g., drought, civil strife, financing) of the shortage to be resolved [1]. The past ten years have seen an increased frequency of power shortages in both the developing and the developed world, as evidenced by Table 1. Power shortages seldom have a single or the same cause. However, a typical pattern begins with underinvestment or very rapid demand growth that degrades reserve margins below acceptable reliability levels, with a crisis then brought on by unusual combinations of weather, fuel supply, or plant availability, or all three. Efficient, affordable and clean energy supply is a key ingredient in poverty reduction and economic growth. The World Bank supports developing countries' efforts to provide clean and reliable electricity services to households and businesses through financing instruments, policy advice, partnerships, and knowledge transfer. In response to demand from developing countries, World Bank financing for energy infrastructure development reached US$ 7 billion in Fiscal Year (FY) 2008. Lending and technical assistance is provided for all aspects of energy, including energy access (e.g., rural electrification), renewable energy and energy efficiency, and energy generation, transmission and distribution. Page 2
  3. 3. As part of its ongoing engagement the World Bank provides technical assistance and advice on sustainable development and infrastructure investment, including the electric power sector. The power sector in many Bank client countries is under severe stress due to generation supply deficits, exacerbated by high or volatile fuel prices. The electricity supply–demand gap in many developing countries is widening, due to growing electricity demand caused by urbanization, industrialization, and rural electrification together with generation and transmission capacity deficits caused by insufficient investment, climate change effects, and budget constraints. The power sector in many countries is also a substantial contributor to both global (greenhouse gas) and local emissions. In its dialogue with client countries, the World Bank seeks to transfer best practice from around the world pertinent to these issues. The World Bank has developed a bundle of knowledge and best practice applicable to diagnosing and resolving electric power shortages, some of which is described in this paper. 2. Diagnosing power shortages Considerable practical experience has been recently gained on how to overcome power shortages. Meier [2], Maurer [3] and others have studied the causes of power shortages and suggested solutions. Power shortages can be divided according to whether they are capacity-related or energy-related and whether the shortage outlook is acute or chronic. Of the notable electricity shortages listed in Table 1, the most serious have been chronic shortages of energy or capacity or both. In the case of South Africa, for example, failure to invest in response to rapid demand growth led to a lack of intermediate and peaking thermal resources – a shortfall of both energy and capacity. In Brazil in 2001, the Page 3
  4. 4. convergence of a stalled deregulation effort leading to underinvestment in private generation, and a lengthy drought caused a chronic energy shortfall which was only abated with the return of normal seasonal rainfall and the commissioning of new thermal power generation. These distinctions, shown in Table 2, are important because each shortage is likely to require a different mix of remedies. In the case of long-lived energy shortages such as Brazil and South Africa, successful remedies must address both the supply and demand side of the problem with multiple and complementary solutions. 3. Portfolio approach to power shortage mitigation The first step in power shortage management is establishing a detailed understanding of the problem. A logical starting point are existing power development plans at the level of the distribution provider or the regional or national utility complemented with demand disaggregation based on the best customer class and end-use load research data available. Understanding the dimensions of the energy and capacity shortfall allows the load-serving entity to identify, evaluate and compare alternative short- and medium-term remedies such as energy efficiency, power factor correction, loss reduction, time-of-use (TOU) and interruptible rates, end-use load control, mobilization of captive and emergency power supplies, and capacity and energy rationing. The planning process should identify the size and duration of the shortfalls to be closed in the short-term with emergency measures such as power rationing, and include other remedies which help customers cope with rationing or reduce the overall level of demand by other means (e.g., loss reduction). Since some remedies are more long-lived than others, the planning process Page 4
  5. 5. should consider implementation time and sustainability of stop-gap measures such as industrial shut-downs. This basic approach is consistent with that suggested by the International Energy Agency [2]. 3.1 Need for complementary, comprehensive solutions A chronic energy or capacity and energy shortfall is unlikely to be resolved with a single measure. Furthermore, there are important complementarities between remedies, especially on the demand side. One complementary solution proven in Brazil, California and South Africa is the combination of utility- and state-sponsored energy efficiency programs together with rationing or rebate programs. In this approach customers are offered incentives (e.g., co-financing, tax breaks, financial intermediation) to encourage purchase of energy-saving appliances or equipment which in turn help the customers meet their consumption reduction quotas. Brazil is often cited as a best practice example, and deservedly so. A concerted effort combined market-based rationing with scaled-up investment in both energy efficiency and new supply, with the entire package bound together with an extensive public awareness program [3]. Similarly in California the so- called “20/20 rebate” program was effective in encouraging customers to reduce their usage to get a 20 percent reduction in their rate. The California utilities aggressively scaled-up initiatives such as bulk procurement and distribution of CFLs and rebates on efficient appliances in order to encourage the investments in energy efficiency that made the 20 percent reduction targets achievable [4]. 3.2 The importance of sensible rationing Page 5
  6. 6. Rationing in the form of load shedding is the most ubiquitous short-term “remedy” for power shortages. Although easiest to implement and most frequently used, load shedding is nonetheless the least desirable form of rationing. This is because load shedding is indiscriminate and usually implemented without warning, thus causing large and unpredictable economic losses that also have a debilitating effect on general customer morale. Prolonged load shedding tends to drive profitable businesses to invest in back-up generation or auto-production, thus reducing the commercial viability of the utility. Over the long run this creates a less conducive environment for new generation and transmission investments in the power sector overall. In some cases utilities have tried to mitigate the impacts of load shedding by differentiating between customers or by providing a schedule of outages in advance. Most of these partial mitigation measures suffer from technical problems. It is difficult to separate out “essential” from “non-essential” loads on the same circuit, as networks are inter-meshed, and providing timetables for load shedding can increase crime rates. Based on experience from around the world, it makes sense to treat load shedding as a rationing tool of last, rather than first, resort [3]. A viable power shortage management scheme must not only limit the impacts of rationing but also distribute these impacts based on economic and equity considerations. Rationing strategies can be evaluated along five dimensions – economic efficiency, equity considerations, sustainability, political/customer reaction, and implementation issues. Some rationing strategies are clearly superior to others, as suggested by Table 3. Certain rationing elements can be effectively combined, such as incentive schemes and consumption quotas. For example, the Brazilian rationing scheme included: (a) Page 6
  7. 7. consumption quotas that varied by rate class and assigned to individual customers based on their normal billing cycle; (b) a bonus for additional reductions; (c) social safety nets for rural and poor households; (d) significant penalties for non-compliance, beginning with financial (based on system short run marginal costs) and extending to service cuts; (e) opportunities for bilateral quota “trading” between large users; (f) a large-scale promotional and awareness campaign; and (g) co-financing of energy efficiency and DSM solutions [5]. 3.3 Harnessing customer preferences via self-rationing and market-based rationing Rationing schemes based on customer-specific usage empower the customer to choose between which types of electricity consumption have the most value. In the case of Brazil, discussed below, households engaged in an array of behavioral and technical changes to achieve an average 20 percent reduction against the previous year’s consumption (see Table 4). A significant number of households purchased more-efficient appliances as part of their self-rationing strategy, thus “locking in” reductions for the lifetime of the appliance. In the case of larger customers a system of secondary markets and bilateral trading of quota entitlements can provide customers with the opportunity to choose an optimal combination of price and quantity. Market-based rationing was included as part of the Brazilian scheme, via a formal secondary market in quota entitlements for larger customers (over 2.5 MW) and provisions for smaller customers (below 2.5 MW) to engage in bilateral trading of quota entitlements by registering the transaction with their utility Page 7
  8. 8. company. The importance of including opportunities for large customers to engage in consumption entitlement trading was underscored by a study carried out by the Ministry of Finance which concluded that creating opportunities for marginal transfers of energy between customers and sectors with different consumption valuations could reduce the impact on GDP of rationing by as much as two-thirds, from 2.4 percent down to 0.8 percent [6]. In the Brazilian case most of the marginal transfers took place bilaterally, although a formal quota entitlement market was created. A common practice was for utilities to establish an internet site where customers could post offers and realize bilateral quota entitlement trades which would then be confirmed and monitored through the utility billing and accounting system. The inclusion of secondary markets and provisions for quota exchanges can provide an important corrective mechanism to the inherent shortfalls of administratively-allocated rationing quotas [5]. 3.4 Price rationing through TOU rates In the case of capacity shortfalls rationing can be also accomplished through price signals that vary by time of day. Such differentiated price signals allow customers the opportunity to decide when and how much energy they want to consume according to its price. A common type of price rationing is TOU pricing, which can be an effective tool in coping with power capacity shortages. TOU pricing can be combined with inverted block tariffs, in which customers are charged a lower price if their consumption stays under a certain threshold for a given interval (week or month). TOU pricing has been used to good effect in a number of countries experiencing capacity shortages, including Thailand, China, Page 8
  9. 9. South Korea, and Taiwan. Under the right conditions and with the right rate design a TOU tariff can shift as much as 10 percent of on-peak demand into other hours [7]. Care must be taken in the design of the tariff to avoid creating another peak demand or sending price signals that cause customers to invest in self-generation rather than redistributing their consumption. The World Bank recently sponsored a marginal costing and TOU rate design and impact study for the Egyptian Electricity Holding Company (EEHC). EEHC’s 2008 peak demand was 20,000 MW but is forecast to increase to 25,000 MW by 2011and more than double within ten years. This peak demand growth is accompanied by a deteriorating load factor, creating a shortage of peaking capacity during the very hot summer months. The TOU pricing study concluded that mandatory TOU pricing for large customers using a 4-4-4 rate design (on-peak season of four months, four hour on-peak pricing period each work day, and a 4:1 ratio of on- to off-peak prices) could reduce large customer peak demand without causing undue customer impacts or drastic changes in utility revenues or customers costs. The study suggested placing some 3,000 large industrial customers on TOU rates could reduce peak demand by 2-3% while reducing the rate of peak demand growth. Extending TOU rates to all customers could potentially double these impacts [8]. 4. Bulk procurement and distribution of CFLs: a “capacity in a hurry” silver bullet? No other demand-side program has proved as effective as bulk Compact Fluorescent Lamps (CFL) programs in helping developing economies remedy power shortages. Since the mid 1990s The World Bank has worked with utilities and energy Page 9
  10. 10. ministries in over a dozen countries and has provided advice, assistance and grants and lending to support investment in CFLs as a “stop-gap” power shortage mitigation strategy. In country after country, the World Bank experience has been that CFLs are a unique remedy in either a portfolio or stand-alone context. Large-scale deployment of CFLs for households and small businesses can be quickly implemented to fill power capacity and energy gaps. Replacing incandescent bulbs with CFLs yields an additional benefit in the form of lower customer bills for the very poor, thus providing a form of social “safety net”. CFLs are also significantly less expensive than an equivalent source of generation. The cost of using CFLs to avoid electricity production can be as little 1/20th of cost of adding emergency diesel generation capacity. Furthermore, deploying CFLs in place of incandescent lamps reduces greenhouse gases (GHG) emission, making these programs eligible for carbon finance. Finally, in many developing economies household lighting is coincident with utility system peaks. For all these reasons it has been easy to convince utility and government power planners and managers that CFL programs are literally a “silver bullet” that can quickly relieve acute capacity shortages while delivering a host of other benefits as well. Table 5 lists just a few of the dozens of developing countries now implementing large-scale CFL programs with donor support [9]. 4.1 Mobilizing the household lighting capacity reduction potential Lighting represents a $200 billion global market and is the most significant electricity saving opportunity in the household and small service/commercial sectors. The energy savings potential is estimated at up to 60 percent for household lighting, including CFLs and thin tube fluorescent lamps (TTFLs), and up to 40 percent for commercial lighting [10]. However, realizing this potential – especially on an accelerated time schedule Page 10
  11. 11. needed for capacity reductions – requires coordinated supply sourcing, distribution network creation, and aggressive marketing efforts. These coordinated efforts must also be calculated to overcome the particular technical, market and institutional barriers to lighting efficiency improvements in any given country. Designing a large-scale CFL program begins with a Residential Consumer Survey. This survey helps verify anecdotal estimates of market potential for CFLs and provides the basis for calculating the costs and benefits of a large-scale program. The upstream considerations of sourcing and procuring large quantities of CFLs are addressed in designing the CFL procurement scheme. Considerable technical and administrative capacity must be established within the implementing agency and its technical partners (e.g., national standards setting organizations and testing laboratories) and the technical and commercial terms of the bulk Bidding Package must be set (e.g., schedule of requirements, delivery points, bid evaluation criteria, technical specifications, penalties and remedies). A key issue with some earlier CFL programs was CFL quality. Program implementation has been made simpler and consumer satisfaction has been improved with the advent of standards and specifications for hardware and vendors. The International Finance Corporation (IFC), a unit of the World Bank Group, sponsored creation of the Efficient Lighting Initiative (ELI) Product Quality Certification Institute, which developed specifications which now largely guide the technical terms of bulk procurement and the logistics of quality assurance [11]. To be successful a bulk CFL program must deliver the CFLs into the hands of consumers and, in the case of replacement programs, making sure that the incandescent bulbs in current use are taken out of circulation. New marketing, distribution and delivery Page 11
  12. 12. channels need to be created, or existing ones modified to serve a new purpose. Consumer awareness is crucial, both to create market demand, overcome any technical or consumer preference barriers, and ensure the overall operation is sustainable. An understanding of customer preferences gained in the Consumer Survey should enter into the design of the delivery and distribution channels for the program. A variety of approaches can be taken according to resources available, public and private sector capacity, pricing strategy, existing utility programs for households and small businesses, and other factors [9]. Distribution can be through either utility or private channels, including non-profit or government organizations (NGOs). Inefficient lamps are collected, destroyed and recycled. Typically a dedicated DSM cell is created within the procuring entity, usually the electric utility. The DSM cell is responsible for continued consumer awareness, monitoring and impact evaluation, processing of Carbon Finance opportunities, and ensuring the terms of the procurement (e.g., providing for testing) are met. As in all large-scale programs project financing is critical. Programs supported by the World Bank often include grant or lending support or, more recently, carbon financing through the Clean Development Mechanism (CDM) or some other means [12]. The financing strategy affects the details of program design and product pricing and may affect the components that must be included in the implementation stage, especially the need for measurement and verification (M&V). 4.2 Assembling best practice into a “tool kit” Based on some of the projects listed in Table 5, a list of success factors for bulk CFL procurement and distribution programs can be offered. The most important factor is ensuring the quality of the CFL product and a good match between the specifications of the Page 12
  13. 13. CFL and the characteristics of the power network. For example, the power factor of a CFL can be improved towards unity for a small per-unit cost. This may be necessary for some networks already suffering from poor power factors, but unnecessary for others. In some distribution schemes the cost of maintaining kiosks for replacement of CFLs after their design life may be high. If this is the case then longer-lived CFLs (12,000 hours instead of 6,000 hrs) can be specified at a higher per-unit cost but yielding an overall lower program cost and improved sustainability. Properly specifying the CFL equipment in terms of lifetime, voltage tolerance, lumens/watt, power factor, and harmonics is a key task that requires specialized expertise. Other important factors include ensuring that awareness and promotion programs are properly targeted to the market audience, including safeguards that ensure the collection and destruction of old incandescent lamps, creating a Monitoring and Evaluation component that is balanced and meets the needs of any carbon financing element, and incorporating sustainability by creating long-term markets and space for private sector participation. The World Bank is currently developing a bulk CFL procurement “tool kit”. This technical assistance product will consolidate best practice in program design and implementation from several “market transformation in a hurry” projects focused on energy efficient household lighting. The planned CFL Tool Kit should reduce the amount of specialized program design expertise and the amount of time needed to develop the upstream and downstream components of a bulk CFL procurement and distribution program. A particular focus of the tool kit will be choosing among different CFL product attributes (e.g., lifetime, power factor, cost) in order to specify a product which is optimal for a given power network and household market [13]. Page 13
  14. 14. 5. Case Studies Four brief case studies are offered to illustrate the variety of power shortages affecting different countries around the world. 5.1 Botswana Botswana is a small southern Africa country, bordered by Namibia, South Africa, and Zimbabwe. Botswana’s power “crunch” came about as a result of three factors common to much of Southern Africa over the past decade – rapid growth in electricity demand due to sustained economic development, rapid expansion of the mining sector due to high commodity prices, and lagging investment in generation and transmission. Facing an immediate supply shortage expected to worsen (to over 150% of available supply) before new generation is available (see Figure 1), the Botswana Power Company (BPC) has implemented the National Energy Efficiency Campaign (NEEC). The campaign includes bulk procurement and distribution of CFLs, load control of electric water heaters, awareness and promotional activities, and a power conservation program for large users (See Table 6). As BPC’s generation capacity is primarily base-load hydro and wholesale imports, the power “crunch” manifests as a peak capacity shortage. Availability of imports for peaking needs have been constrained by the parallel power crunch in South Africa. Therefore, both load management strategies (load shifting, load control) and energy efficiency strategies (household CFLs and industrial power conservation) are effective. BPC has focused NEEC efforts on outreach and awareness to electricity customers and the general public. BPC utilizes radio and TV for mass markets and special seminars and workshops for large customers to get across the basic message of “Take action to use Page 14
  15. 15. electricity more efficiently… in your homes and your place of business… in every aspect of your life…save power for your country…save money for your home and business.” [14]. 5.2 Brazil The well-documented [3] 2001 Brazilian supply crisis was the result of several intersecting events and a healthy dose of bad planning. A power sector reform effort undertaken in 1998 successfully privatized the distribution sector, but not generation. The overall sector reform strategy called for the new investment flowing into the sector from privatization to stimulate development of gas-fired power plants utilizing new sources of gas to expand and diversity generation supply. While these plants were being built, the ongoing power needs would be met by drawing down the stored hydro reserves. This strategy was undone by delays in new generation construction, inability to execute long-term contracts for gas, and development of a new grid code. As a result the forecast short-term power supply became badly deficient. Despite dwindling hydropower reserves, the Government of Brazil (GoB) did not take any firm action until a lack of rainfall in 2000 and 2001 made it clear that drastic reductions in demand would be necessary to avoid extended blackouts. In June 2001 the GoB created the Electric Energy Crisis Management Board, known as the GCE. The full Board was chaired by then-President Cardoso, and the GCE was granted special powers that superseded the regulator, including establishing special tariffs, implementing compulsory rationing and blackouts, and bypassing normal bidding procedures. The Board considered two distinct approaches – (a) a load shedding approach, where each region would be disconnected on a rotating basis, according to a pre-agreed Page 15
  16. 16. schedule but priority loads (e.g. hospitals, police), spared; .and (b) a “Quota System”, in which each customer was obligated to reduce their consumption relative to a “baseline”, with financial penalties and disconnection for non-compliance. The GCE took a gamble in opting for the Quota System (shown in Table 7), which was anticipated to be administratively complex with uncertain impacts. The Brazilian case demonstrated that a rationing scheme can complement other DSM and energy efficiency market intervention strategies, especially customer awareness building, promotions, and incentive schemes to influence customer behavior. The decision to adopt a self-rationing system based on quotas rather than involuntary rationing via rolling black-outs proved highly successful. The quota system yielded sufficient reductions in usage to eliminate the need for load shedding or involuntary black-outs. The rather extraordinary results are shown in Table 2. The self-rationing scheme for mass market customers and market-based entitlement trading scheme for large users resulted in a 20 percent reduction for the 9 month period needed for the crisis to pass. A massive educational campaign resulted in permanent savings in terms of energy efficiency investments, and the impact on GDP was minimized as businesses were able to use the secondary quota entitlement market to set their own price-consumption combination. The demand response to compulsory rationing was so successful that the Government was obliged to pay out over $200 million in bonuses to residential, industrial and commercial customers who met and exceeded their reduction quotas [3]. 5.3 Uganda Page 16
  17. 17. The power shortage began in 2004 when a severe regional drought lowered the level of Lake Victoria, reducing available hydropower generation and exacerbating an existing power deficit. The result was massive load shedding for many months, hurting the economy and disrupting normal activities. The Government took a decision to install diesel-fueled thermal power plants on an emergency basis and after considerable delay these units began operating. However, emergency generation comes at a cost. Despite tariff increases which brought prices up to 18 cents/kWh, the Government still finances up to pay US$50 million a year in operating costs to make electricity even somewhat affordable to consumers. Base-load hydropower capacity remains badly de-rated because of lowered water levels. During 2008 only 145 of an installed hydropower capacity of 380 MW was operating, with the balance supplied by expensive thermal power. This situation will continue until construction a new 250 MW hydropower plant at Bujagali (partly financed by the World Bank) begins operation in 2012. In the interim the Government has undertaken demand side measures to reduce the shortfall, including loss reduction and a bulk CFL program. Bulk CFL program design began with a consumer survey, which showed only 1/3 of households were already using efficient lighting fixtures (See Figure 3). Household consumers were sensitized through awareness campaigns and provided with CFLs to realize the 80 percent savings when CFLs replace incandescent bulbs. Some 800,000 CFLs were procured and distributed to domestic consumers of the state utility. The consumers are given three CFLs free of charge in return for handing over three ordinary bulbs. Bulk procurement brought the price down to $1.23 per CFL. These bulbs were procured using Page 17
  18. 18. the technical specifications developed through IFC’s ELI activity and approved by the Uganda Bureau of Standards. Actual savings in 2007 was estimated at 30 MW by a third- party independent evaluator. The evaluator calculated the cost of the CFL program as 1/10 of the equivalent cost of electricity generated with diesel-fueled thermal power stations [15]. 5.4 South Africa South Africa’s power shortage slowly developed over a decade but emerged as a national crisis only in early 2008. The parastatal generation and transmission company Eskom was advised as early as 1998 that, absent a large new investment program, it would be short of power in 2008. Despite these alerts the Government did not approve any capacity additions, with the result steady erosion in reserve margins [1]. A power crisis in January 2008 was brought on by a combination of supply-side problems including coal availability, maintenance needs, and unplanned outages causing system reserve margins to fall from 10 percent to nil, effectively overnight. The size of the power shortage is staggering - daily on-peak system loads (defined as 6 am to 10 pm) need to be reduced by 3500 MW, or about 10 percent of peak demand, for a four year period until new capacity can be built [16]. Despite a year of consultation, Eskom has still been unable to work out with Government an economy-wide Power Rationing Scheme, or agree on a rapid scale-up of demand side measures. Emergency power cuts of up to 20 percent applied to large industrial customers at the onset of the crisis continues to be the only rationing scheme in place. Industrial expansion has been slowed and mining and other companies have been Page 18
  19. 19. forced to factor self-generation into development of new projects. In the meantime Eskom has proposed a number of major demand-side initiatives, including a program to replace 1 million gas water geysers with solar water heaters, replacement of 35 million incandescent bulbs with CFLs, installation of 5 million advanced, “smart-meters” capable of partial demand rationing for suburban households, and scaling-up of other energy efficiency efforts [16]. The global economic downturn has manifested in lower power demands, lessening the pressure of Eskom’s existing generation resources and providing some breathing room. Although Eskom now has a reserve generating margin of 8% (compared with the 5.6% margin the utility had at the beginning of 2008), this remains well short of the 15% reserve margin target. For this reason Eskom is leaving in place promotional campaigns encouraging consumers to save 10% on electricity demand and is moving forward with its demand-side investments, subject to approval by the National Energy Regulator of South Africa (NERSA). These investments together with a rationing scheme for larger homes and businesses with penalties for excessive consumption, recently agreed in principle with Government, will restore adequate reserve margins by reducing peak demand by another 1,200 MW [17]. 6. Lessons learned Power shortages are not accidents in high growth, financially constrained power systems. With rare exceptions, the scope and timing and causes of a power shortage are known well in advance. Unfortunately, the necessary action or decision is often not taken or politically possible until the effects of the shortage are felt. The lag times to implement investment decisions in either new supplies or demand reductions extends the duration of Page 19
  20. 20. the power shortage and its negative impact on the economy and quality of life. Therefore, an effective power shortage mitigation strategy should be phased so as to minimize the impacts of the initial power crisis while developing longer-term solutions to the causes of the shortage itself. Shortages vary in nature and duration; therefore, no remedy fits all. However some remedies – notably sensible rationing programs and bulk CFL replacement programs - have proven adaptable to many types of power shortages. Other proven remedies include energy conservation promotion and awareness programs and quickly-implemented targeted solutions such as load control, TOU pricing, and mobilizing customer-owned generation. Unfortunately, the worst power shortage solution - load shedding - is the one most commonly used. These forms of involuntary rationing are the worst way to deal with electricity shortages and should be considered the last resort, when everything else has been tried and found insufficient. Some other lessons learned in mitigating the effects of power shortages on the economy and livelihoods of developing economies include: 1. Have good early warning signals before the situation gets out of control and “last resorts” such as load shedding and blackouts become unavoidable (South Africa, Uganda, Botswana). 2. Create enough lag time to develop superior solutions that take a little more time to implement, such as market-based rationing (Brazil, South Africa). 3. Look for power shortage remedies that increase the inherent efficiency and flexibility of the power sector, such as improved end-use efficiency (South Africa, Brazil). Page 20
  21. 21. 4. Power shortages call for a centralized approach to planning and implementation and the capacity to take tough political decisions. This can be helped by creating temporary entities with special authority backed by highest-level government support (Brazil). 5. Social safety nets should be retained as part of the power shortage remedies. The targeting of poor households for CFL distribution is attractive because it reduces household consumption and customer bills (Uganda, Botswana). References [1] The New York Times. Toiling in the Dark: Africa’s Power Crisis. New York: New York Times, 2007. See also: http://www.nytimes.com/2007/07/29/world/africa/29power.html? ex=1343448000&en=3091a716b2e58631&ei=5124&partner=permalink&exprod=permalin k [2] International Energy Agency. Saving Electricity in a Hurry: Dealing with Temporary Shortfalls in Electricity Supplies. Paris: International Energy Agency, 2005. See also: http://www.iea.org/Textbase/Papers/2008/cd_energy_efficiency_policy/7-Energy %20utilities/7-savingElec.pdf [3] The World Bank. Implementing Power Rationing in a Sensible Way: Lessons Learned and International Best Practices. Washington, DC: World Bank, 2005. See also: http://www.esmap.org/filez/pubs/372007120957_305-05+Final_to_website.pdf [4] Lawrence Berkeley National Laboratory. California Customer Load Reductions during the Electricity Crisis: Did they Help to Keep the Lights On? Berkeley, CA: Page 21
  22. 22. Lawrence Berkeley National Laboratory, 2002. See also: http://eetd.lbl.gov/ea/EMS/reports/49733.pdf [5] Maurer, L. Confronting Power Crises in a Sensible Way: Putting the Demand Side into the Equation. From: AFTEG Staff Meeting, Annapolis, MD. Washington, DC: World Bank, 2008. [6] Power Systems Research Incorporated. Review of the Brazilian Power Sector. Rio de Janiero: Power Systems Research Incorporated, 2002. See also: ftp://zia.stanford.edu/pub/papers/vonderfehrwolak.pdf [7] The World Bank. Primer on Demand-Side Management with an Emphasis on Price- Responsive Programs. Washington, DC: World Bank, 2005. See also: http://siteresources.worldbank.org/INTENERGY/Resources/PrimeronDemand- SideManagement.pdf [8] Economic Consulting Associates, Ltd. Egypt: Development of a Load Management Program and Design of Time of Use/Seasonal Pricing. London: Economic Consulting Associates, Ltd., 2008. 41 Lonsdale Road, LONDON, NW6 6RA, UK. [9] The World Bank. Large Scale CFL Deployment Programs: Mainstreaming Carbon Finance and Clean Development Mechanism (CDM). Washington, DC: World Bank, 2008. See also: http://www.energyrating.gov.au/pubs/2008-phase-out-session4-sarkar.pdf [10] Lawrence Berkeley National Laboratory. The $230-billion Global Lighting Energy Bill. Berkeley, CA: Lawrence Berkeley National Laboratory, 2002. See also: http://eetd.lbl.gov/EMills/PUBS/Global_Lighting_Energy.html [11] International Finance Corporation. The ELI Story: Transforming Markets for Efficient Lighting. Washington, DC: International Finance Corporation, 2005. See also: Page 22
  23. 23. http://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/p_ELI/ $FILE/ELI_FINAL.PDF [12] The World Bank. Scaling Up Demand–Side Energy Efficiency Improvements through Programmatic CDM. Washington, DC: World Bank, 2007. See also: http://www.esmap.org/filez/pubs/11212007125014_ScalingUpDemandSideEE.pdf [13] The World Bank. Energy Efficiency Needs and Toolkit Assessment Project Concept Note. Washington, DC: World Bank, 2006. See also: http://www.esmap.org/filez/ activity/228200731110_GlobalEENeedsandToolkit.pdf [14] Botswana Power Corporation. The National Electricity Efficiency Campaign. Presented at: GoB Energy Sector Communications workshop, Maharaj Conference Centre, Gabarone, Botswana: Botswana Power Company, 2008. [15] UgandaPulse.com. Power Crisis Hits Harder in Uganda. Kampala, Uganda: Ugandapulse.com, 2006. See also: http://www.ugpulse.com/articles/daily/Business.asp? about=Power%20Crisis%20Hits%20Harder%20in%20Uganda&ID=526 [16] Power Magazine. Whistling in the Dark: Inside South Africa’s power crisis. Houston: Power Magazine, 2008. See also: http://www.powermag.com/business/Whistling- in-the-dark-Inside-South-Africas-power-crisis_1488.html [17] Miningmx. Eskom: One Year Later. Sandton, South Africa: Miningmx, 2009. See also: http://www.miningmx.com/commentary/Eskom-one-year-later.htm Page 23
  24. 24. Figure 1: Botswana capacity outlook Page 24
  25. 25. Figure 2: Residential energy savings results during the 2001 power crisis in Brazil Page 25
  26. 26. Tubes 11% Energy savers 22% c Ordianry bulbs 67% Figure 3: Uganda household light fixture holdings, 2005 Page 26
  27. 27. Table 1: Notable power shortages since 2000 – developed and developing economies Country/Region/State Vintage Cause(s) Tanzania, Kenya 2001 Drought Pacific Coast of USA 2000-01 Drought, heat, failed sector reforms New Zealand 2001 Drought exacerbated by transmission failure Brazil 2001-02 Drought, sector reform, insufficient investment Dominican Republic 2002 - “Financial black-out”: no money to buy fuel Tokyo 2003 Nuclear power plant safety shut-downs Norway 2003 Drought and unusually cold weather Europe 2003 Drought, hot weather, plant shutdowns China 2004-07 Very rapid demand growth, deteriorating load factors, insufficient investment Bangladesh 2005- Demand growth & lack of investment Tanzania 2006 Drought, depleted reservoirs, demand growth Uganda 2006- Drought, insufficient investment, demand growth South Africa 2007 Demand growth & lack of investment +coal shortages Vietnam 2007 Very rapid demand growth Rwanda 2006- Insufficient investment, demand growth Ghana 2006- Insufficient investment, demand growth Pakistan 2007 Rapid demand growth & lack of investment Ethiopia 2008- Delay in commissioning of Tekeze Hydro Plant, drought and demand growth Sources: IEA, World Bank Page 27
  28. 28. Table 2: Diagnosing power shortages Type of Acute Long-lasting Shortfall • Scandinavian drought • South Africa’s power crunch (2006-?) Energy (2002) • Brazilian Power Crisis (2001-2002) • East African drought (2006) • Tepco’s nuclear plant shut- • California Power Crisis (2000-2001) Capacity downs (2003-4) • Rapid peak demand growth in China and • European heat wave & Vietnam drought (2004) Page 28
  29. 29. Table 3: Evaluating alternative rationing strategies Rationing Advantages Disadvantages Examples Strategies Block load shedding Bangladesh Easy to implement Unpredictable, very California inefficient, unpopular Class-wide Brazil Equitable Inefficient consumption quotas Japan Easy to explain & implement Requires “safety nets” Market-based Brazil Economically efficient More difficult to rationing (quota and implement Sustainable trade) Requires strong leadership Incentive/reward California Equitable More expensive in the schemes short run Sustainable Encourages efficiency investment Rationing using Most OECD Equitable Bill impacts from price signals countries higher rates Sustainable Need to maintain a Reflects marginal costs social safety net Encourages investments May induce load impact Page 29
  30. 30. Table 4: Energy conservation actions taken by households in response to Brazilian rationing [3] Page 30
  31. 31. Table 5: Some indicative bulk CFL programs in developing countries Region/ CFL Program Goal Program Design Status Comments Country 3rd party distribution via free Uganda 0.8 million/30 MW Completed swap-outs including Measurement and Evaluation Rwanda 0.4 million 2 free lamps for each pre- Phase 1 complete Includes paid customer; pass-through Phase 2 ongoing carbon pricing on balance of bulk financing purchase Central 100 thousand Revamp of existing hydro Just approved by African plants combined with World Bank Republic distribution of CFLs 1st CDM Ghana 6 million/240 MW Up to 4 CFLs purchased for Ongoing cost of incandescent project Western 5 million Door-to-door free swap-out 2006-2007 Due to shut- Cape in townships + subsidized down of (South retail prices through kiosks Koeberg Africa) & shops Nuclear Power Plant South 30 million Replacement program using Underway Africa/ long-lived bulbs and ESKOM focused on townships Mexico 200 million Includes other appliances Since 1995 Hebei .6 million per year Swap out to access CFLs at Ongoing Province discount price (China) Ethiopia 4.8 million/160 Utility distribution via free Launched in 2008 MW swap-outs Source: World Bank Group Page 31
  32. 32. Table 6: Botswana Power Company capacity shortage mitigation strategies Strategy Expected peak load impact Timing CFL program 30 MW 2008 Water heater load shifting 35 MW 2009 Large user demand management 10 MW 2008 Cogeneration retrofits 10 MW 2010 Page 32
  33. 33. Table 7; Quota allocation by customer type in the Brazilian rationing scheme Page 33

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