REAs/REFs in Rural Electrification
A Review of three EU Rural
Electrification Reports
African Electrification Initiative
Practitioner Workshop
Dakar, 14-16 November 2011
Ralph Karhammar
[email protected]
1
Structure of the Presentation
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Three EU Rural Electrification Reports
Power Market Reforms
Rural Electrification (RE) Reforms
What Has Happened Under the RE Reforms?
EU Reports’ Conclusions
Recommendations
Dakar, 14-16 November 2011
REAs/REFs in Rural Electrification – Ralph Karhammar
page 2
The three European Commission RE Studies
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Mostert, 2008 looked at institutional set ups, in particular
experience of Rural Electrification Agencies and Funds
SOFRECO, 2010 looked at strategies for increased access to
affordable and sustainable energy services through REAs/REFs
COWI, 2010 looked at policy issues on how to increase sustainable
energy investments in Africa
The two latter dealt substantially with rural electrification
implemented through Public Private Partnerships (PPPs) and
implementation issues around the PPP contract between a
responsible public body and a rural electrification operator.
Dakar, 14-16 November 2011
REAs/REFs in Rural Electrification – Ralph Karhammar
page 3
Back drop: Power Market Reform
Most SSA countries are in transition
phase due to recent power sector reform
processes, main objective being to open
the sector to new operators.
Constrained by lack of country
commitment, macroeconomic and
political crises, lack of experience with
political economy factors.
• Desired outcomes only partly achieved:
- better service quality,
- improved government fiscal position,
- affordable access for the poor.
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Many unfortunate experiences for
investors:
- the overall disappointing view
outweighs some good experiences
(ENRON, AES, etc.).
Dakar, 14-16 November 2011
REAs/REFs in Rural Electrification – Ralph Karhammar
page 4
Rural Electrification Reform
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Historically
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GRID EXTENSIONS
• HV-MV extended by public authorities to local
administrative centres
• Low density of LV electrification, limited coverage,
high connection fees
• High costs due to inappropriate standards
• Cost-ineffective due to low demand
OFF-GRID RENEWABLE PROGRAMS
• Near 100%
investment subsidy, grants, O&M left to
end-user communities
maintenance problems
• Limited service,
• Innovative schemes outside of the Regulatory
Dakar, 14-16 November 2011
‘CENTRALISED RE’
•National or regional
companies still have
monopoly concession
‘DECENTRALISED RE’
• REA/REFs
created to manage RE funds to
multitude of actors – private companies,
project developers o/s sector and
community/ cooperatives
• REA/REFS
serve different situations,
policies & practices
• Unleashing multiple [private] actors:
low- consumption
Framework , donor agency focus
Reform
bring in extra capital, higher efficiency,
new actors
REAs/REFs in Rural Electrification – Ralph Karhammar
page 5
Approach spectrum from ‘no change’ to full PPP Implementation
Countries
with Ministry
of Energy in
charge of
planning
where public
utilities build
and operate
the networks
(e.g. Ghana)
Dakar, 14-16 November 2011
Countries
with laws
accepting
new RE
utilities, but
majority of
financing still
into grid
extensions
Countries in
transition to
building up
new utilities
(e.g.
Tanzania)
(e.g. Zambia,
Uganda)
REAs/REFs in Rural Electrification – Ralph Karhammar
Countries
building up
rural
electrification
with new
utilities
(e.g. Senegal,
Mali)
page 6
Approach - Full PPP - Senegal, Mali:
“Boldly gone where few have gone before…”
Characteristics:
PPP scheme logic:
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Major utility concession limited to areas it
serves and excluded from further participation
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Low connection fees/higher tariffs
(within WTP)
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New procedures aimed at PPP with
independent distributors
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Focus on density, high load factors
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Technology neutral
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May include house wiring and energy
efficiency
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Predictable business environment,
delimited RE concession areas and clear
rules
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Differential rural tariffs or subsidy
scheme to compensate for national
tariff
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“Top- down” national or regional projects:
areas prioritised, calls for tender to find
operators
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“Down- top”: calls for tender, promoters
propose local projects developed by private
stakeholders
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BOT contracts
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Initial investment subsidy (50 -70%), no
further operation subsidy
Dakar, 14-16 November 2011
REAs/REFs in Rural Electrification – Ralph Karhammar
page 7
Some Issues with Bold Approach:
Successes:
12 regional concessions (SEN)
10 regional concessions (MAL)
41 locally initiated projects (diesels
and minigrids) (MAL)
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Specific tariff structure
(connection fees, usage)
Standardised shared evaluation
tools for PPP environment, e.g.
business plans, reference cost
tables, manuals, etc.
Dakar, 14-16 November 2011
Issues:
 Little private equity capital attracted
 PPP environment ‘issues’ point to
need for PPP capacity development
and advisory facility
 Need to look at slow uptake in RE
concessions, until reaching ‘critical
mass’
 More involvement of IFIs, Partial
Risk Guarantees/Local Banks, Partial
Credit Guarantees/MFIs
REAs/REFs in Rural Electrification – Ralph Karhammar
page 8
Approach - Grid: Ghana, Zambia, Mozambique:
“Anything wrong with Grid Extensions?”
Traditional ‘pre-reform’ RE schemes:
with government fixing global
milestones, grid extension planning
left to utilities:
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often cheapest way to reach new
consumers
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often necessary for equitable
regional development
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Off-grid suitable for populations far
from the grid or with small demand
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80 to 95 % of unserved
communities to receive electricity
via the grid
Dakar, 14-16 November 2011
Countries in ‘Time Warp’- really?
 Ghana succeeded in 20,000 new rural
connections/year, urban electrification rate
of 87% and rural 35%, innovative low cost
schemes: the Self Help Scheme, the Shield
Wire Distribution
 Mozambique succeeded in reaching
60,000-70,000 new connections/year
(10,000 in early ‘90s), now embarking on
SWER technology
 Zambia with national rural master plans
now on target to double new connection
rate from 3,000 to 6,000/month due to
innovative deferred connection payment
scheme
REAs/REFs in Rural Electrification – Ralph Karhammar
page 9
There is no evidence for the superiority of any
specific institutional model for electrification
Some successful cases based on public/
private/cooperative models and REAs (World
Bank 2010: ‘Addressing the Electricity Access
Gap’):
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Key: institutional framework consistent
with country’s strengths/problems
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RE programs require strong leadership by
an efficient distribution utility or specially
designated agency, efficient chain of
contractors and small service providers
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Countries with diverse institutional
approaches succeeded with RE, provided
that programs and strategies ensure
efficient and sustainable execution
Dakar, 14-16 November 2011
Use the centralized RE approach for grid
extensions in combination with REA/REF
for off-grid electrification (Mostert, 2008)
REAs/REFs in Rural Electrification – Ralph Karhammar
page 10
Conclusions from the three RE Studies- Important Factors
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Policy Framework: government support, financing & specialized RE Institutions,
PPPs facilitated, PPP assistance resource centre, RE facilitating policies, light handed
regulation, transparent and inclusive RE planning
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Supply Chain: qualified consultants, constructors and private firms,
training and support to chain actors, international/national energy/engineering
companies, CSO
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Technical Standards & Costs: mitigate inexplicably high unit costs,
low-cost techniques, appropriate standards, up-to-date reference unit price
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Financing & Sustainable Operations: adapt IFI instruments - especially Partial Risk
Guarantees, long term local bank loans - government Line of Credit and credit
enhancing, e.g. involve Microfinance Institutions, mitigate slow uptake in RE
concessions
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Electricity demand: critical mass of consumers, high system load factor - to improve
load factor e.g. trough promoting productive use (loans to equipment ) and
promoting domestic use (lending to promote domestic appliances)
Dakar, 14-16 November 2011
REAs/REFs in Rural Electrification – Ralph Karhammar
page 11
How clear are the conclusions from the three
RE Studies – on REA/REF general principles
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Independence of the REAs (funding, board
decisions, management autonomy)
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Detailed and public rules (regulation,
procurement, contracting)
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Flexibility left to the project proposals
(technologies, costs, tariffs)
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‘Fair’ bidding procedures for tenders/calls for
proposals
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Transparent evaluation tools (reference costs,
business plans)
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Public info on procedures, developer support,
decisions, etc.
Dakar, 14-16 November 2011
REAs/REFs in Rural Electrification – Ralph Karhammar
page 12
REA/REF recommendations from the EU reports - keys
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Consider signing performance contract with REA defining number of electrified villages and
households/year (Burkina Faso)
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Contract local bank as Trust Agent administering REF loans for fixed annual fee, interest in
rural finance as normal commercial activity (Guinea, Tanzania)
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For Local Financing Institutions long term loans:
(i) line of credit on near-commercial terms (Tanzania)
(ii) credit-enhancing partial risk guarantee ( for RE projects and PV-dealers (Mostert , COWI)
(iii) refinancing facility to match usual long payback time of investments (Uganda/IDA ERT)
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Consider encouraging microfinance institutions (MFIs) to finance interior equipment,
consumption, small businesses and capacity building (SOFRECO 2010, Senegal)
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Consider mitigating slow customer uptake in RE concessions, e.g. subsidization of
connection fees/investment costs until reaching financial viability (COWI 2010)
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Promote productive and domestic use, improve system load factor, establish special credit
facility through Rural Banking System - credits to households for wiring and upfront
connection costs (Ghana)
Dakar, 14-16 November 2011
REAs/REFs in Rural Electrification – Ralph Karhammar
page 13
REA/REF recommendations – tools
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Develop public rules for regulation, standards, tariffs, bidding,
contributions (Burkina Faso)
Pool projects into single tender to benefit from economies of
scale, avoid collusion between suppliers and project promoters
(Guinea)
Develop shared evaluation tools, e.g. standardised business
software models, reference spreadsheet tariff calculating models,
manuals, reference cost tables (Senegal, Mali, Guinea, Burkina
Faso)
Reduce project application costs by coordinating procedures, e.g.
single application forms package, one focal point/institution
involved, REA to follow process from beginning to end (Guinea)
Dakar, 14-16 November 2011
REAs/REFs in Rural Electrification – Ralph Karhammar
page 14
In spite of all this, why is so little RE happening?
‘Depoliticises/mechanizes ’
project selection
Arms-length REF
management
Turns non-commercial projects
- to ‘commercially viable’
Old Concept
Subsidies paid against
milestones
‘Bottom-up project development’
- local/private initiatives
New Concept – REA/REF
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Thank you for your attention!