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| | [[File:Back to NAE Overview Page.png|center|800px|NAE Overview Page|alt=NAE Overview Page|link=National Approaches to Electrification – Review of Options]] | | [[File:Back to NAE Overview Page.png|center|800px|NAE Overview Page|alt=NAE Overview Page|link=National Approaches to Electrification – Review of Options]] |
| | <p style="text-align: center;"></p> | | <p style="text-align: center;"></p> |
| − | {{Template:NAE Technology Page Banner}} | + | {{Template:NAE Technology Page Banner}}<br/> |
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| | <p style="text-align: center;"><span style="color:#006700ff;">'''Technology: The physical means by which electricity is generated, transmitted and distributed'''</span></p> | | <p style="text-align: center;"><span style="color:#006700ff;">'''Technology: The physical means by which electricity is generated, transmitted and distributed'''</span></p> |
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| − | The primary financing for grid-connected mini-grids will generally align with the delivery model, with publically-owned mini-grids using public finance and privately owned mini-grids drawing on private finance. However, where incomes are lower or system costs higher, some form of public-private partnership is likely to be needed with public funding (eg through grants and subsidies) making electricity from grid-connected mini-grids affordable to users and the mini-grid systems economically sustainable.<br/> | + | The primary [[Portal:Financing_and_Funding|financing]] for grid-connected mini-grids will generally align with the delivery model, with publically-owned mini-grids using public finance and privately owned mini-grids drawing on private finance. However, where incomes are lower or system costs higher, some form of public-private partnership is likely to be needed with public funding (eg through grants and subsidies) making electricity from grid-connected mini-grids affordable to users and the mini-grid systems economically sustainable.<br/> |
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| | <span style="font-size: 13.6px;">User charges are the other main source of funding with connection charges and ongoing tariffs are used to contribute to investment, cover ongoing operating costs and support repayment and return on investment. As with any system supplying multiple users there is likely to be some element of cross-subsidy between users connected to any individual mini-grid system. Cross-subsidy between grid-connected mini-grids or between the main grid and grid-connected systems may be appropriate, particularly if a uniform tariff is applied. </span> | | <span style="font-size: 13.6px;">User charges are the other main source of funding with connection charges and ongoing tariffs are used to contribute to investment, cover ongoing operating costs and support repayment and return on investment. As with any system supplying multiple users there is likely to be some element of cross-subsidy between users connected to any individual mini-grid system. Cross-subsidy between grid-connected mini-grids or between the main grid and grid-connected systems may be appropriate, particularly if a uniform tariff is applied. </span> |
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| | Under any regulatory regime a key question for private mini-grid investors will be what happens when the main grid arrives? Grid extension into a mini-grid concession area within the concession period may be prohibited by the terms of the concession, or there may be explicit provision for compensation and transfer of assets to grid ownership. mini-grid licensees have less protection from grid extension than concessionaires, but even where there is no formal concession it is often beneficial to establish a compensation regime in the event of grid extension, to encourage private mini-grid investment in the interim. | | Under any regulatory regime a key question for private mini-grid investors will be what happens when the main grid arrives? Grid extension into a mini-grid concession area within the concession period may be prohibited by the terms of the concession, or there may be explicit provision for compensation and transfer of assets to grid ownership. mini-grid licensees have less protection from grid extension than concessionaires, but even where there is no formal concession it is often beneficial to establish a compensation regime in the event of grid extension, to encourage private mini-grid investment in the interim. |
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| − | Where mini-grids are delivered through a public model with purely public finance, the legal basis will generally be less critical as public financiers are less likely to be concerned about recovery of and return on investment through future revenues. | + | Where mini-grids are delivered through a public model with purely public [[Portal:Financing_and_Funding|finance]], the legal basis will generally be less critical as public financiers are less likely to be concerned about recovery of and return on investment through future revenues. |
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| − | Financing for isolated mini-grids will generally align with the delivery model, with publically-owned mini-grids using public finance and privately owned mini-grids drawing on private finance. However, where incomes are lower or system costs higher, some form of public-private partnership is likely to be needed with public funding (eg through grants and subsidies) making electricity from mini-grids affordable to users and the mini-grid systems economically sustainable. | + | [[Portal:Financing_and_Funding|Financing]] for isolated mini-grids will generally align with the delivery model, with publically-owned mini-grids using public finance and privately owned mini-grids drawing on private finance. However, where incomes are lower or system costs higher, some form of public-private partnership is likely to be needed with public funding (eg through grants and subsidies) making electricity from mini-grids affordable to users and the mini-grid systems economically sustainable. |
| | | | |
| | User charges are the other main source of funding with connection charges and ongoing tariffs are used to contribute to investment, cover ongoing operating costs and support repayment and return on investment. As with any system supplying multiple users, there is likely to be some element of cross-subsidy between users connected to any individual mini-grid system. Cross-subsidy between isolated mini-grids or between the main grid and mini-grid systems may be appropriate, particularly if a uniform tariff is applied. | | User charges are the other main source of funding with connection charges and ongoing tariffs are used to contribute to investment, cover ongoing operating costs and support repayment and return on investment. As with any system supplying multiple users, there is likely to be some element of cross-subsidy between users connected to any individual mini-grid system. Cross-subsidy between isolated mini-grids or between the main grid and mini-grid systems may be appropriate, particularly if a uniform tariff is applied. |
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| − | Standalone systems are most frequently supplied to users through a purely private-sector chain of manufacturers, importers, distributors and retailers. In a number of cases (such as shown in the [[NAE Case Study: Bangladesh, IDCOL Solar Home Systems|NAE Case Study of the IDCOL programme in Bangladesh]]), public-private partnership models have been used. In general this has been through use of public finance (grants, subsidies and loans) to enhance affordability and support market growth, though there could be benefits in certain circumstances for government energy agencies to become directly involved in the standalone system market, by forming a joint entity to supply systems or by taking on one of the roles along the value chain (eg providing a distribution service for all system providers). More rarely a purely public model is used to provide standalone systems to users, for example where the grid company provides standalone systems to those it is not economic to connect to the grid (eg in [[NAE Case Study: South Africa, Integrated National Electrification|NAE Case Study South Africa]]). <br/> | + | Standalone systems are most frequently supplied to users through a purely private-sector chain of manufacturers, importers, distributors and retailers. In a number of cases (such as shown in the [[NAE Case Study: Bangladesh, IDCOL Solar Home Systems|NAE Case Study of the IDCOL programme in Bangladesh]]), public-private partnership models have been used. In general this has been through use of public [[Portal:Financing_and_Funding|finance]] (grants, subsidies and loans) to enhance affordability and support market growth, though there could be benefits in certain circumstances for government energy agencies to become directly involved in the standalone system market, by forming a joint entity to supply systems or by taking on one of the roles along the value chain (eg providing a distribution service for all system providers). More rarely a purely public model is used to provide standalone systems to users, for example where the grid company provides standalone systems to those it is not economic to connect to the grid (eg in [[NAE Case Study: South Africa, Integrated National Electrification|NAE Case Study South Africa]]). <br/> |
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| − | Though provision of standalone systems requires less capital investment than investment in grid or mini-grid systems, those establishing standalone system business nevertheless require capital for business development and working capital to fund the period (typically three months or more) between purchase/ import of the product by the business and sale to the end-user. Because standalone systems are often imported, this also brings a requirement for access to foreign capital. Where standalone systems are sold to users, it is to these users that much of the requirement for capital investment falls. This need for up-front user finance has formed one of the most substantial barriers to growth of markets for standalone systems (even where these systems are demonstrably an economic option for the user in the longer term). This barrier can be alleviated through micro-finance and similar programmes, and has also driven the growth of pay-as-you-go arrangements whereby the need for up-front finance is transferred to the supplier (though users remain the ultimate source of finance through their payments for electricity). Though most standalone system providers are private companies, many have struggled to access private finance, reflecting private financiers reluctance to invest in start-up companies without established track-records seeking to grow a new market. Instead many have relied on finance from donors and social funders. This has been one of the main constraints on standalone system market growth. Public finance, through grants, subsidies and concessionary loans (to both suppliers and users) and tax exemptions (eg VAT and import duty exemptions) have been used to make standalone systems more affordable to users. <br/> | + | Though provision of standalone systems requires less capital investment than investment in grid or mini-grid systems, those establishing standalone system business nevertheless require capital for business development and working capital to fund the period (typically three months or more) between purchase/ import of the product by the business and sale to the end-user. Because standalone systems are often imported, this also brings a requirement for access to foreign capital. Where standalone systems are sold to users, it is to these users that much of the requirement for capital investment falls. This need for up-front user [[Portal:Financing_and_Funding|finance]] has formed one of the most substantial barriers to growth of markets for standalone systems (even where these systems are demonstrably an economic option for the user in the longer term). This barrier can be alleviated through micro-finance and similar programmes, and has also driven the growth of pay-as-you-go arrangements whereby the need for up-front finance is transferred to the supplier (though users remain the ultimate source of finance through their payments for electricity). Though most standalone system providers are private companies, many have struggled to access private finance, reflecting private financiers reluctance to invest in start-up companies without established track-records seeking to grow a new market. Instead many have relied on finance from donors and social funders. This has been one of the main constraints on standalone system market growth. Public finance, through grants, subsidies and concessionary loans (to both suppliers and users) and tax exemptions (eg VAT and import duty exemptions) have been used to make standalone systems more affordable to users. <br/> |
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| − | Clear national policies and targets and availability of market information have been identified as key factors enabling standalone system providers to assess market scale and so encourage market entry. Regulatory reform, particularly in the finance sector to enable pay-as-you-go arrangements is also seen as vital, as is establishment and enforcement of quality standards to give consumers confidence in products. Exemption from taxes and duties (particularly where this is needed to create a level playing field with other forms of energy access) can catalyse market development, and user awareness raising and development of a workforce with the technical and business skills need to support business growth are also important (and beyond the capacity of individual standalone system businesses) to support its growth. | + | Clear national policies and targets and availability of market information have been identified as key factors enabling standalone system providers to assess market scale and so encourage market entry. Regulatory reform, particularly in the [[Portal:Financing_and_Funding|finance]] sector to enable pay-as-you-go arrangements is also seen as vital, as is establishment and enforcement of quality standards to give consumers confidence in products. Exemption from taxes and duties (particularly where this is needed to create a level playing field with other forms of energy access) can catalyse market development, and user awareness raising and development of a workforce with the technical and business skills need to support business growth are also important (and beyond the capacity of individual standalone system businesses) to support its growth. |
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| | {{NAE Acknowledgements}} | | {{NAE Acknowledgements}} |
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| − | [[Category:Rural_Electrification]]
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| − | [[Category:Energy_Access]]
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| − | [[Category:Grid_Integration]]
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| − | [[Category:Grid]]
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| − | [[Category:Mini-grid]]
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| | [[Category:NAE]] | | [[Category:NAE]] |
| | + | [[Category:Mini-grid]] |
| | + | [[Category:Grid]] |
| | + | [[Category:Grid_Integration]] |
| | + | [[Category:Energy_Access]] |
| | + | [[Category:Rural_Electrification]] |
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Delivery Model
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Isolated mini-grids are often privately owned, but may be publically owned or combine both in a public-private partnership. Common models include:
- An isolated mini-grid owned by a private developer, a user-cooperative or community organisation;
- Mini-grids owned and operated by the national grid company in off-grid areas;
- A mini-grid operated by a municipality or other local public entity to supply an off-grid community;
- Isolated mini-grids developed under a Public-Private Partnership, for instance on a Build-Own-Operate-Transfer basis.
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Legual Basis
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Mini-grids require substantial, long-term, capital investment and hence a regulatory framework which will give developers, and particularly private financiers, confidence that there will be a market for electricity from the mini-grid for a long enough period to repay and provide an adequate return on their investment. Larger systems may require concessions (which protect against competition over a designated area and time period) to give investors the confidence in revenue forecasts to commit the long-term capital investment needed. For smaller mini-grids, with lower and shorter-term capital investment, a licensing regime (which grants a non-exclusive right to sell electricity) may be more appropriate, with greater flexibility and a generally less demanding process balancing lack of protection from competition for the investor, while still providing the means to protect users through price/tariff regulation and setting technical and safety standards. Mini-grids below a certain size (eg <100kW in the Tanzania NAE Case Study), are often unregulated, as the administrative burden (and costs) of regulation are seen as disproportionate to the protection it would provide to investors and users, and the right to operate instead being granted through a general derogation from regulation.
Under any regulatory regime a key question for private mini-grid investors will be what happens when the main grid arrives? Grid extension into a mini-grid concession area within the concession period may be prohibited by the terms of the concession, or there may be explicit provision for compensation and transfer of assets to grid ownership. mini-grid licensees have less protection from grid extension than concessionaires, but even where there is no formal concession it is often beneficial to establish a compensation regime in the event of grid extension, to encourage private mini-grid investment in the interim.
Where mini-grids are delivered through a public model with purely public finance, the legal basis will generally be less critical as public financiers are less likely to be concerned about recovery of and return on investment through future revenues.
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Price/Tariff Regulation
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Isolated mini-grids rely on revenues from the sale of electricity to users to cover ongoing operating, maintenance and administrative costs and repayment and return on investment. Regulation of tariff levels is therefore a critical factor for private investors in mini-grids, with inadequate or inappropriate tariff regulation often cited as the key barrier to mini-grid investment.
A uniform-tariff regime, where all mini-grid operators must charge the same tariffs, has the attraction of apparent equity, but will generally encourage investment only in those areas where electricity can be supplied at a lower cost allowing the investor to retain a margin and discourage investment in harder to supply areas (unless public funding/subsidy, or cross-subsidies, are made available to overcome higher costs). Individually set tariffs, based on costs specific to individual mini-grid contexts, are more likely to encourage investments in more remote areas.
Whatever form of tariff regulation is used the critical requirement is that it is clear and transparent, to reduce project development costs and give private financiers confidence that revenues from mini-grids are not vulnerable to arbitrary regulatory decisions and political pressure.
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Finance
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Financing for isolated mini-grids will generally align with the delivery model, with publically-owned mini-grids using public finance and privately owned mini-grids drawing on private finance. However, where incomes are lower or system costs higher, some form of public-private partnership is likely to be needed with public funding (eg through grants and subsidies) making electricity from mini-grids affordable to users and the mini-grid systems economically sustainable.
User charges are the other main source of funding with connection charges and ongoing tariffs are used to contribute to investment, cover ongoing operating costs and support repayment and return on investment. As with any system supplying multiple users, there is likely to be some element of cross-subsidy between users connected to any individual mini-grid system. Cross-subsidy between isolated mini-grids or between the main grid and mini-grid systems may be appropriate, particularly if a uniform tariff is applied.
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Non-Financial Interventions
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National energy planning and sharing of market information are key to establishing the planned
extent and timescales for grid extension and hence the scope for isolated mini-grids. Regulatory reform and policy and target-setting are likely to be required to create the framework for isolated mini-grids to be developed. Capacity building or technical assistance may be beneficial where potential developers lack necessary skills and capabilities. User awareness raising and demand promotion are often essential to increase revenues and make mini-grids economically sustainable.
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Delivery Model
|
Standalone systems are most frequently supplied to users through a purely private-sector chain of manufacturers, importers, distributors and retailers. In a number of cases (such as shown in the NAE Case Study of the IDCOL programme in Bangladesh), public-private partnership models have been used. In general this has been through use of public finance (grants, subsidies and loans) to enhance affordability and support market growth, though there could be benefits in certain circumstances for government energy agencies to become directly involved in the standalone system market, by forming a joint entity to supply systems or by taking on one of the roles along the value chain (eg providing a distribution service for all system providers). More rarely a purely public model is used to provide standalone systems to users, for example where the grid company provides standalone systems to those it is not economic to connect to the grid (eg in NAE Case Study South Africa).
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Legual Basis
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Standalone system providers are rarely subject to regulation (beyond general business licensing requirements), though they may be required to meet certain standards in order to access subsidies and tax exemptions. In part this reflects policy-makers’ perception of them as product retailers rather than infrastructure providers, but also that without long-term fixed capital investment, private companies have not needed the protection of a concession or license to attract private capital (and would regard it simply as a regulatory burden). Concessions for standalone systems may however, as in NAE Case Study Peru, be used to bring standalone system companies into a market which they might otherwise be unwilling to enter by protecting them from competition (though the long-term risks of market distortion under such an arrangement should be carefully considered). Standalone systems may also be included as one means of providing electricity within an integrated electricity concession also encompassing mini-grid and/or grid system access. It’s also possible that with standalone system providers increasingly looking to pay-as-you-go arrangements, where they retain ownership of the system until the user has bought it through monthly payments, or even over its full life with the user simply paying for electricity used, regulating electricity supply through standalone systems may become more appropriate.
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Price/Tariff Regulation
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Prices of standalone systems supplied by the private sector are generally unregulated. Where public funding is used to support provision of standalone systems it may (as with the NAE Case Study of the IDCOL programme in Bangladesh) be appropriate to regulate prices. Also, if the move towards pay-as-you-go, with users paying for electricity as they do from grid or mini-grids, while suppliers retain ownership of the capital equipment, continues or accelerates, regulation of the prices they pay may become more relevant. Regulation of prices for standalone systems, or of electricity supplied through these systems, on an individual basis is impractical given the multiplicity of systems. Uniform price regulation, where a standard price or tariff is set is more likely to be viable. However, any such regulation should recognize the differentials in costs between different types and sizes of standalone system, and parity with grid (or mini-grid) prices should only be attempted if subsidies are available to balance the cost differentials between these different Technologies.
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Finance
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Though provision of standalone systems requires less capital investment than investment in grid or mini-grid systems, those establishing standalone system business nevertheless require capital for business development and working capital to fund the period (typically three months or more) between purchase/ import of the product by the business and sale to the end-user. Because standalone systems are often imported, this also brings a requirement for access to foreign capital. Where standalone systems are sold to users, it is to these users that much of the requirement for capital investment falls. This need for up-front user finance has formed one of the most substantial barriers to growth of markets for standalone systems (even where these systems are demonstrably an economic option for the user in the longer term). This barrier can be alleviated through micro-finance and similar programmes, and has also driven the growth of pay-as-you-go arrangements whereby the need for up-front finance is transferred to the supplier (though users remain the ultimate source of finance through their payments for electricity). Though most standalone system providers are private companies, many have struggled to access private finance, reflecting private financiers reluctance to invest in start-up companies without established track-records seeking to grow a new market. Instead many have relied on finance from donors and social funders. This has been one of the main constraints on standalone system market growth. Public finance, through grants, subsidies and concessionary loans (to both suppliers and users) and tax exemptions (eg VAT and import duty exemptions) have been used to make standalone systems more affordable to users.
|
|
Non-Financial Interventions
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Clear national policies and targets and availability of market information have been identified as key factors enabling standalone system providers to assess market scale and so encourage market entry. Regulatory reform, particularly in the finance sector to enable pay-as-you-go arrangements is also seen as vital, as is establishment and enforcement of quality standards to give consumers confidence in products. Exemption from taxes and duties (particularly where this is needed to create a level playing field with other forms of energy access) can catalyse market development, and user awareness raising and development of a workforce with the technical and business skills need to support business growth are also important (and beyond the capacity of individual standalone system businesses) to support its growth.
|
The Review was prepared by Mary Willcox and Dean Cooper of Practical Action Consulting working with Hadley Taylor, Silvia Cabriolu-Poddu and Christina Stuart of the EU Energy Initiative Partnership Dialogue Facility (EUEIPDF) and Michael Koeberlein and Caspar Priesemann of the Energising Development Programme (EnDev). It is based on a literature review, stakeholder consultations. The categorization framework in the review tool is based on the EUEI/PDF / Practical Action publication "Building Energy Access Markets - A Value Chain Analysis of Key Energy Market Systems".
A wider range of stakeholders were consulted during its preparation and we would particularly like to thank the following for their valuable contributions and insights:
- Jeff Felten, AfDB - Marcus Wiemann and other members, ARE - Guilherme Collares Pereira, EdP - David Otieno Ochieng, EUEI-PDF - Silvia Luisa Escudero Santos Ascarza, EUEI-PDF - Nico Peterschmidt, Inensus - John Tkacik, REEEP - Khorommbi Bongwe, South Africa: Department of Energy - Rashid Ali Abdallah, African Union Commission - Nicola Bugatti, ECREEE - Getahun Moges Kifle, Ethiopian Energy Authority - Mario Merchan Andres, EUEI-PDF - Tatjana Walter-Breidenstein, EUEI-PDF - Rebecca Symington, Mlinda Foundation - Marcel Raats, RVO.NL - Nico Tyabji, Sunfunder -
