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| | = Introduction = | | = Introduction = |
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| − | Lack of [[Access_to_Modern_Energy|energy access]] continues to be a pervasive issue in many countries. A contributing factor to this is the '''unaffordability of grid electricity'''. Many countries have yet to achieve 100% electrification of their population, with electrification rates as low as 31.1% in Cambodia, to 6.4% in Niger.<sup>[4]</sup> | + | Lack of [[Access to Modern Energy|energy access]] continues to be a pervasive issue in many countries. A contributing factor to this is the '''unaffordability of grid electricity'''. Many countries have yet to achieve 100% electrification of their population, with electrification rates as low as 31.1% in Cambodia, to 6.4% in Niger.<sup>[4]</sup> |
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| | '''Low electrification rates are coupled with high connection costs''',<sup>[3]</sup> as can be seen by the data in Figure 1. In Sub-Saharan Africa, a region with one of the lowest electrification rates world-wide, industrial electricity tariffs can reach $20-50 cents/kWh<sup>[5]</sup>. Compared to a global average electricity tariff of $10 cents/kWh<sup>[6]</sup>, this is very high. Such high tariffs in regions with limited electrification rates result from the high costs for domestic connection, as well as from high investment costs coupled with low profitability. Therefore, the few generators and suppliers that do sell electricity are only able to sell it for higher prices. | | '''Low electrification rates are coupled with high connection costs''',<sup>[3]</sup> as can be seen by the data in Figure 1. In Sub-Saharan Africa, a region with one of the lowest electrification rates world-wide, industrial electricity tariffs can reach $20-50 cents/kWh<sup>[5]</sup>. Compared to a global average electricity tariff of $10 cents/kWh<sup>[6]</sup>, this is very high. Such high tariffs in regions with limited electrification rates result from the high costs for domestic connection, as well as from high investment costs coupled with low profitability. Therefore, the few generators and suppliers that do sell electricity are only able to sell it for higher prices. |
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| − | | + | [[File:Figure ConnectionChargesandNationalElectrificationRates 2011 IEA.png|frame|left|180px|Figure 1: Relationship between connection charges and electrification (Golumbeanu and Barnes, 2013)]] |
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| | Figure 1: Relationship between connection charges and electrification (Golumbeanu and Barnes, 2013) | | Figure 1: Relationship between connection charges and electrification (Golumbeanu and Barnes, 2013) |
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| | Many countries remain unable to offer grid connection at low cost. As shown in figure 2, where the density of demand is rather low, the cost of connecting to the grid is high. This supports the notion that grid expansion in sparsely populated communities is expensive, and therefore less profitable. Rural households have to pay higher prices to become connected. | | Many countries remain unable to offer grid connection at low cost. As shown in figure 2, where the density of demand is rather low, the cost of connecting to the grid is high. This supports the notion that grid expansion in sparsely populated communities is expensive, and therefore less profitable. Rural households have to pay higher prices to become connected. |
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| − | | + | [[File:Load density vs grid connection cost (Steve Fischer, Practical Action, 2007).png|border|none|685px|Figure 2: Load density vs. grid connection cost (Steve Fischer/Practical Action, 2007)|alt=Figure 2: Load density vs. grid connection cost (Steve Fischer/Practical Action, 2007)]] |
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| | Figure 2: Load density vs. grid connection cost (Steve Fischer/Practical Action, 2007) | | Figure 2: Load density vs. grid connection cost (Steve Fischer/Practical Action, 2007) |
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| | *<u>Prepaid electricity</u>: Current tariff structures assume that consumers always need electricity. For a low-income household, this is often not the case as income dictates their capability to use electricity. By providing prepaid connections, use is matched with income. | | *<u>Prepaid electricity</u>: Current tariff structures assume that consumers always need electricity. For a low-income household, this is often not the case as income dictates their capability to use electricity. By providing prepaid connections, use is matched with income. |
| − | *<u>Optimization and increased efficiency</u>: By optimizing the entire system, operating expenditure is reduced and a more reliable supply is made available. This could potentially stretch the grid due to savings made from efficiency measures.<ul style="list-style-type:circle;"> | + | *<u>Optimization and increased efficiency</u>: By optimizing the entire system, operating expenditure is reduced and a more reliable supply is made available. This could potentially stretch the grid due to savings made from efficiency measures. |
| − | <li>This can be done through accurate metering and billing, or increased machine efficiency among other methods.</li>
| + | **This can be done through accurate metering and billing, or increased machine efficiency among other methods. |
| − | </ul>
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| − | <li><u>Lowered connection charges and tailored tariff blocks</u>: As the primary cost, utilities should lower these charges to enable more consumers the access. Additionally, a moving average should be the basis for lifeline tariffs to better reflect consumer usage.</li>
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| − | <li><u>Load Limited supply</u>: To lessen the cost of grid expansions, electricity can be supplied for limited loads<sup>[9]</sup>. With lower load factors, systems will be less costly. This however means that the maximum load must be low, limiting consumer-end use.</li>
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| − | </ul>
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| − | Other measures target the financial viability of affordable electricity which is critical to operate efficiently and to obtain the necessary investments.<sup>[7]</sup> <sup>[11]</sup>
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| − | *<u>Raised tariffs</u>: The World Bank’s study revealed that eliminating inefficiencies alone would be unable to widen electricity access. Therefore, tariffs must be increased to allow utilities to expand their reach.<ul style="list-style-type:circle;"> | + | *<u>Lowered connection charges and tailored tariff blocks</u>: As the primary cost, utilities should lower these charges to enable more consumers the access. Additionally, a moving average should be the basis for lifeline tariffs to better reflect consumer usage.</li> |
| − | <li>This measure should be coupled by consumer conscious details such as incremental tariff increases, and targeting larger and better-off consumers. It is best coupled with supply improvements to guarantee price acceptability.</li>
| + | *<u>Load Limited supply</u>: To lessen the cost of grid expansions, electricity can be supplied for limited loads<sup>[9]</sup>. With lower load factors, systems will be less costly. This however means that the maximum load must be low, limiting consumer-end use.</li> </ul> Other measures target the financial viability of affordable electricity which is critical to operate efficiently and to obtain the necessary investments.<sup>[7]</sup> <sup>[11]</sup> |
| − | </ul>
| + | *<u>Raised tariffs</u>: The World Bank’s study revealed that eliminating inefficiencies alone would be unable to widen electricity access. Therefore, tariffs must be increased to allow utilities to expand their reach. |
| − | <li><u>Cost reductions and increased cash collections</u>: transmission & distribution and collection losses combined represent the dominant hidden cost in 18 countries, indicating that current tariffs might be sufficient to cover costs over the medium term.<ul style="list-style-type:circle;">
| + | **This measure should be coupled by consumer conscious details such as incremental tariff increases, and targeting larger and better-off consumers. It is best coupled with supply improvements to guarantee price acceptability.</li> </ul> |
| − | <li>While many policy makers focus on raising tariffs, it may make sense to focus more on cost reductions via investments in transmission & distribution and increased cash collections.</li>
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| − | </ul>
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| − | </li>
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| − | </ul>
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| − | Subsidies should be targeted and not merely cover operational inefficiency costs. Those lower the incentives to improve utilities’ performance and tend to grow disproportionately. <sup> [11]</sup> | + | *<u>Cost reductions and increased cash collections</u>: transmission & distribution and collection losses combined represent the dominant hidden cost in 18 countries, indicating that current tariffs might be sufficient to cover costs over the medium term. |
| | + | **While many policy makers focus on raising tariffs, it may make sense to focus more on cost reductions via investments in transmission & distribution and increased cash collections. Subsidies should be targeted and not merely cover operational inefficiency costs. Those lower the incentives to improve utilities’ performance and tend to grow disproportionately. <sup> [11]</sup> |
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| | Trends in status of financial viability in Sub-Saharan Africa (SSA):<sup>[11]</sup> | | Trends in status of financial viability in Sub-Saharan Africa (SSA):<sup>[11]</sup> |
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| | = Further Information = | | = Further Information = |
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| − | *[[Grid_-_External_Links|Grid- External Links]] | + | *[[Grid - External Links|Grid- External Links]] |
| − | *[[Electrifying_Africa:_Grid_Extension_Models_in_Sub-Saharan_Africa|Electrifying_Africa:_Grid_Extension_Models_in_Sub-Saharan_Africa]] | + | *[[Electrifying Africa: Grid Extension Models in Sub-Saharan Africa|Electrifying_Africa:_Grid_Extension_Models_in_Sub-Saharan_Africa]] |
| − | *[[Economic_and_Financial_Impacts_of_Grid_Interconnections|Economic and Financial Impacts of Grid Interconnections]] | + | *[[Economic and Financial Impacts of Grid Interconnections|Economic and Financial Impacts of Grid Interconnections]] |
| − | *[[Rural_Electrification|Rural Electrification]] | + | *[[Rural Electrification|Rural Electrification]] |
| − | *[[Access_to_Modern_Energy|Access to Modern Energy#Affordability]] | + | *[[Access to Modern Energy|Access to Modern Energy#Affordability]] |
| | *Energy access: [http://www.undp.org/content/undp/en/home/ourwork/climate-and-disaster-resilience/sustainable-energy/energy-access.html http://www.undp.org/content/undp/en/home/ourwork/climate-and-disaster-resilience/sustainable-energy/energy-access.html] | | *Energy access: [http://www.undp.org/content/undp/en/home/ourwork/climate-and-disaster-resilience/sustainable-energy/energy-access.html http://www.undp.org/content/undp/en/home/ourwork/climate-and-disaster-resilience/sustainable-energy/energy-access.html] |
| | *Making electricity affordable: [http://www.wri.org/blog/2013/02/civil-society-groups-help-make-electricity-affordable-and-sustainable http://www.wri.org/blog/2013/02/civil-society-groups-help-make-electricity-affordable-and-sustainable] | | *Making electricity affordable: [http://www.wri.org/blog/2013/02/civil-society-groups-help-make-electricity-affordable-and-sustainable http://www.wri.org/blog/2013/02/civil-society-groups-help-make-electricity-affordable-and-sustainable] |
Figure 1: Relationship between connection charges and electrification (Golumbeanu and Barnes, 2013)
Making electricity affordable may involve many different actions: policy changes, system optimization, and subsidies among others. The World Bank defines affordable electricity as 30 kWh of electricity that costs no more than 5% of a household’s income[7]. This amount would be easily covered by subsidies. Estimates show that in Africa, this cost should not exceed 6% of utilities’ current income. For 19 countries, this would cost less than $5 million in annual subsidies and can be as low as $1 million for majority for the same countries. However, this excludes rural communities and assumes these will be served by off-grid setups. Off-grid electricity production can come in many forms, therefore its costs are more difficult to quantify.
Many countries remain unable to offer grid connection at low cost. As shown in figure 2, where the density of demand is rather low, the cost of connecting to the grid is high. This supports the notion that grid expansion in sparsely populated communities is expensive, and therefore less profitable. Rural households have to pay higher prices to become connected.
Figure 2: Load density vs. grid connection cost (Steve Fischer/Practical Action, 2007)
Even when connected, the 33% of Africans who do have access to electricity suffer from highly interruptible supply. Some countries offer lifeline rates as an alternative, which essentially allow discounted electricity usage to a certain amount, then start charging use. Whilst this mechanism widens electrification reach, when coupled with increasing block tariffs, this can stifle positive activities such as studying and/or limit income-generating activities. This does little to help low-income households to escape poverty.
