ecowas regional training workshop policy and regulatory ......workshop policy and regulatory...

ECOWAS Regional Training Workshop

Policy and Regulatory Framework for Clean Energy

Mini-Grids, 17-19 July 2017,

Abuja, Nigeria

Main aspects of CEMG policy and regulatory framework

Summary of the presentation:

Basics of Rural Electrification andMini-grids

Mini-grid Operator Models

Stakeholders’ Interests and Contributions

Abuja, 17 July 2017 page 2

Rural electrification challenges:

• Population spread over large areas• Isolated with difficult access infrastructure• Low purchasing ability• Culture of non-payment of services• Limited demand for electricity

Fallacies of rural electrification:• Over-estimating demand• Over-dimensioning• Over-specifying• High installation quality standards vs. Lousy maintenance

Basics of Rural Electrification and Mini-gridsAbuja, 17 July 2017 page 3

Basics of Rural Electrification and Mini-gridsAbuja, 17 Luly 2017 page 4

1. Economic issues:

• High capital cost• Lack of financing/subsidies• Utilities have limited investment capability • Lack of access of credit for the consumer• Limited income generation activities

2. Policy and governance issues:

• Lack of policy and legal framework• Unrealistic political commitments• Lack of institutional capacity• Lack of Integrated Rural Electrification Plans

3. Legal and regulatory issues:

• Inadequate legal frameworks for renewable energy power sources

• Onerous requirement for the small power produces set by the government or utility

4. Financial and market issues:

• Lack of access to credit for investors• Insufficient technical, geographical and commercial information

by market participants to make sound financial decisions

„Ladder“ of sustainable energy solutions and services


Mini-grids and Micro-grids definition:

Mini-grids involve small-scale electricity generation (10 kW - 10

MW)

Distribution of electricity via a distribution network that canoperate in isolation from national gridSupply relatively concentrated settlements with a limited number of customers with electricity at grid quality level

Micro-grids are similar to mini-grids but operate at a smaller size and generation capacity (1-10 kW)

Clean Energy MG ….


Three alternatives:

• Grid extension only where the cost is reasonable

• Operating mini-grids in villages where the cost of grid extension is too high

• Applying stand-alone systems (e.g. Solar Home Systems and pico-PV systems) in scarcely populated areas with weak demand potential


Mini-grid „space“ (credit: Inensus)


Mini-grids have distinct advantages:

• Can be less expensive due to lower capital cost of infrastructure (depending on distance), but CEMG …

• Lower cost of operation by avoiding transmission and distribution losses, and CEMG ..

• Power is more reliable (CEMG and security of supply…)• Mini‐grid developers have the potential to access capital beyond the

traditional power sector• Can provide power to productive uses of energy• Development and operation of mini-‐grids can create local jobs• CEMG developers have strong incentives to pursue demand‐side

management (but …)• RE mini-grids have additionally environmental advantages


Mini-grids development is limited, due to a number of key barriers:

1. Inadequate regulation, policy gaps or uncertainty• Unclear level of policy commitment to mini-grids• Changes in electrification plans, regulatory requirements or incentives• Uncertain actual delivery of pledged incentives• The inability to charge cost-reflective tariffs (limits commercial business models)• Uncertainty over whether the grid will arrive, and what happens if it does

2. Capacity issues and lack of standardisation• Regulatory, resource and financial situations are “custom-made”• No standardised technology and operation/management• Lack of capacity / knowledge of market participants

3. Lack of access to affordable longer term finance• Private banks and investors perceive a greater risk in a mini-grid• Also they have little sector experience/exposure


Mini- grids operator modelsAbuja, 17 July 2017 page 12

Basically 4 models:

1. Utility Operator Models

2. Private Operator Models

3. Community Based Models

4. Hybrid Operator Models


Mini-grid Operator Models – Utility

• Project development and mini-grid operations (power generation and distribution, incl. retailing) by a utility

• Funding from public sources, i.e. government or donors

Key success factors: appropriate internal capacity, proper procurement process


Mini-grid Operator Models - Private• Private entity plans, builds, manages and operates the mini-grid system• Funding depends on private equity and commercial loans as well as some form of

government or donors support• Pure private sector operator models in which all the investment comes from

private sources are rare but do exist• Private sector is often better suited (than utilities) to manage smaller mini-grids

Key success factor: attractive policy and regulatory framework


Mini-grid Operator Models - Community

• Local community owns, operates and manages the system and provides all services

• The financing is typically highly grant-based with some community contributions

• The planning, procurement of equipment, installation and commissioning is often done by third parties

Key success factor: Tariffs should cover at least reinvestment / depreciation, and operations and maintenance costs


Mini-grid Operator Models - Hybrid

• Combine different aspects of the three models presented above …..

• Funding from commercial sources, possibly with public support (government or donors)

• Investment, ownership and operation of a mini-grid might not be carried out by the same entity

• Generation and distribution of electricity may be split and carried out separately in the form of small power producers (SPP) and small power distributers (SPD)

Or: Duties and responsibilities are split according to who builds, owns, operates and maintains the system


1. Customers (1/2 slides)

a) Household Customers• Rural people aspire to gain access to affordable and reliable

modern energy services• They pay for their service (discuss higher tariffs)

b) Institutions as Customers• Electrifying community or public social institutions is a priority as

it enables the facilitation of public services, which has a major development impact

• ?

Stakeholders’ Interests and ContributionsAbuja, 17 July 2017 page 19

1. Customers (2/2 slides)

c) Productive Use Customers

• Agricultural Loads (e.g. irrigation pumps)

• Productive Loads (e.g. milling, rice de-husking, oil pressing, wood/metal workshops)

• Commercial Loads (e.g. shops, bars, ice-makers, battery charging and renting, lantern renting)

• Anchor loads (e.g. telecom towers, mines, green-houses, hotels, loggias)

• They pay higher tariffs and provide load during the day, this often makes the mini-grid investment feasible


2. Public Utilities

• Plan electrification activities primarily in areas already covered by or close to the existing grid

• In some cases they are explicitly involved in building and operating mini-grids

• Sometimes they play the role of facilitator or regulator while letting private developers and the communities be in charge of mini-grid systems

• Sometimes they try to jeopardise mini-grids


3. Private Developers and Operators

• Private developers and operators of mini-grids are rare

• The few private mini-grid operators usually have a development or social focus (either a cooperative structure and are close to the NGO sector), or they are often social entrepreneurs and they are

typically Small and Medium sized Enterprises (SMEs)

Enabling conditions:• Must be legal to operate a mini- or micro-utility, and licences should be obtained

easily• They must be allowed to charge tariffs that allow “risk equivalent” margins• Ministries/authorities must disclose attractive villages/towns listed for mini-grid

electrification which will not be connected to the main grid within a guaranteed period of time and also implement a clear, reliable and long-term scheme for when the national grid does arrive

• No local (national) political interference Stakeholders’ Interests and ContributionsAbuja, 17 July 2017 page 22

Questions to consider:

• Which institution is responsible for plans for (rural areas) grid extension (MoE, Rural Electrification Agency or utility?)

• Are there policy instruments that limit or choose operator models in your country

• Public vs. private investments in rural electrification

• Protection of investments (political interferences)

• What happens if the grid comes (legislation)

• PPA, FiT and islanding regulated

Abuja, 17 July 2017 page 23

Next daysAbuja, 17 July 2017 page 24

The Mini-grid Policy Toolkit and further information are available at:

www.euei-pdf.org/thematic-studies/mini-grid-policy-toolkit

Thank you for your attention!

http://www.euei-pdf.org/thematic-studies/mini-grid-policy-toolkit

ecowas regional training workshop policy and regulatory ......workshop policy and regulatory...

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