October 2007

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Integrated Rural Energy Utilities and some other issues

Introduction and invitation to comment/contribute

Douglas Banks, Restio Energywww.restio.co.za

A REEEP funded projectwww.reeep.org

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Current Situation

• Vast majority of rural households un-electrified (>90%)• About 30 to 40% of rural hh in South Africa unelectrified• Wood and charcoal main energy resource• Kerosene, dry cells, car batteries, candles, gensets

Grid is first choice, but people still use other fuels, and wood

SHS is a significant off-grid technology

Significant interest in mini-grid (SA, Zambia, Uganda..)

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Existing frameworks for delivery• PREPS and LIREPs

– Grid distribution (fed from national grid)

– Independent grid power based distribution

• Private sector led PV sales– Micro-credit/Village Banks– Cash– Supported by ERT (UG), UNDP,

SIDA, SSMP• Institutional Electrification

– Ministry of Health, Education and others (often using PV)

• Thermal energy delivery– Fuel wood collection/use– Charcoal production and sales– Improved stove programmes– Biogas programmes– LPG distribution – private sector

• Productive use– MFP’s/PURE/PUC’s etc

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Key challenges of rural energy delivery

• Affordability• Location/Logistics• Scale of enterprises delivering services• Scalability/replicability of operations• Access to government/international resources• Efficiency of the overall delivery framework• Skilled personnel• Sustainable business model that

– Ensures delivery– Ensures long term presence, maintenance, advice,

support– Financial sustainability

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The IREU Roadmap• To build a case for rural integrated energy service utilities, serving grid

and off-grid households, thermal energy needs, social sector energy needs (education, health, water, ICT) and business needs, and raising awareness of energy options and efficiency

• To develop best practice guidelines for these utilities, including business models and implementation and regulatory frameworks

• REEEP funded project, implemented by Restio Energy

•Integrates planning, and manages planning risks•Simpler funding and implementation management?•Improves scale / viability, especially for management•Manages grid/off-grid tension•Focus on best technology for service in given application•Solid infrastructure, potential to service other development needs•Operate in a ‘service territory’

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Partially achieved already?• Many elements of the vision presented

above have been tested• In concession models

– South Africa and elsewhere. – Senegal: SHS, mini-grid and grid as part of

single bid• Priority Rural Electrification Projects

(Uganda, several other countries)– Exclude thermal, do not deal fully with SHS

• Sustainable Solar Market Packages (Tanzania, Uganda)

– –exclude grid/thermal• Integrated Energy Centres (SA)

– but these are ‘single entities’, exclude grid and SHS at present

• Utilities such as EDF, and even Eskom have included grid and off-grid

• Seldom specific thermal attention – (e.g. SA concessions, but these exclude grid)

• Seldom specific regional focus – (development of a implementation

organization with robust capacity at a ‘district’ or multi ‘district’ level)

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Non-grid energy service delivery is a working reality (SA concessions as an example)

• 33 400 installations done and being maintained

• 6 operating companies, some 6 years old, 4 of which have significant BEE shareholding

• Attracted > R50 million (estimated) private sector investment

• DME capital of R3500/connection (No generation, bulk supply etc required) (About R118 million)

• Some munics have provided operational (FBE) subsidy (approx R600 000/month)

• 142 Employees, 54 subcontractors during routine operations, 100 more during installations

• Significant LPG sales – (e.g. NuRa 60 000kg/month)

• Reach close to customers (Energy Stores)• International funding for additional

concession attracted (approx R100 million)• 1.67 MW of renewable capacity• 2 GWh/annum of RE generation• CO2 & TREC benefits not yet being realised

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Energy Stores: The heart of the operation

• Is the heart of the Utility• Staffed by people from the area• Customer liaison and development (marketing, education)• Installations (currently use centrally managed team and

contractors)• Maintenance, revenue collection• Stocks spares, some non-grid appliances• LPG sales and appliances• Resource for energy and development in the community

(e.g. workshops with schools and clinics) • Information and sales of energy efficient globes (for grid)• Over time will become independent business unit, franchised

to Utility and owned by store manager/staff/local entrepreneur

• Will support local ‘service points/agencies’

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Business model options

• PPP ‘Utility’• purchase in bulk from national or other bulk supplier• Distribute to customers in ‘territory’• Supply and maintain off-grid• Where appropriate, mini-grid using renewable and other• Incorporate distributed generation• Facilitate or supply thermal energy services (biomass, biogas, LPG)

• Energy stores operating as part of a utility (possibly as separate businesses)

• Smaller operators (working under a franchise or similar agreement, supported by a regional management services company)

• Public sector utilities with a widened mandate• Rural Energy co-operative associations with robust ‘association’• Two or more entities working in a structured collaboration (e.g.

biogas dissemination, and off-grid electrification)

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Which energy services to include?

• Grid• Distributed generation• Micro-grids• Off-grid • LPG?• Biomass?• Biogas?• Bio-fuels?• Appropriate choices will depend on:

– Consumer needs– National policies– Status in operational regions– Operational capabilities

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Grid costs / connection• Usually within reasonable limits, but costs increase under certain

conditions• Distance from supply lines with sufficient capacity• Cost of bulk supply• Small settlement size• Low household density/low take up rate• Domestic connections also have impact on generation capex/peak loads

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Key challenges

• Overcoming regulatory and institutional hurdles to integration of grid and off-grid– Permission for PPP to distribute grid

• Addressing concerns regarding the establishment of ‘monopolies’ for energy service (regulation)

• Achieving the breadth of vision need from funders, investors, authorities, implementers and employees – (people tend to pay lip service to integration but feel more

comfortable with ‘focus’)• Staff training at range of levels• Finding way to ensure that ‘less commercial’ activities

(e.g. biomass energy, energy education) can be accommodated, sustained within a framework that retains business viability

• Fee-for-service or other model for Solar home system delivery?

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Where next?• Significant interest when I have talked to

people• But- is it realizable? Does it really make

sense?• REEEP IREU project allows us to explore

the issues:• Focus on:

– South Africa– Tanzania, Uganda

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Project team

• Doug Banks, Robert Aitken, Alix Clark and Katherine Steel (MIT) will work on this project from Restio Energy.

• Partners for this project include:– Chris Purcell of the Energy & Development Group

• South African and East African rural energy planning, experience with grid, off-grid technologies and thermal technologies

• Sifiso Dlamini , (General Manager of NuRa)– will contribute his experience of off-grid PV and LPG

delivery. (D Banks of Restio Energy is also a Director of NuRa)

• External review will be provided by – Xavier Lemaire (SERN) and Dr Ekkehart Naumann, AEDB

(Pakistan) • Stakeholder involvement is structured into the project

– REA (Uganda), DME (RSA), others…

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Project Activities• Review: based on experience, literature on rural energy entities:

Document outcomes, problems, lessons learned in context of IREU. In this process identify most suitable project as reference/test case for development of best practice IEU ‘business case’ rationale. Candidates include NuRa, East African Priority Rural Electrification Projects (PREPs) or similar.

• Includes meetings in RSA, UG, TZ

• Develop guidelines and reference material • IEU partnership and investor criteria• Regulatory models, institutional framework• Finance mechanisms • Capacity requirements – particularly for rural implementation• Costing of fuel and service options• Business models for IEUs – including path from current to proposed• Financial/economic models for investors (including governments)

• Documentation and dissemination• Linking of stakeholders around identified case • Includes planned workshop late 2008 (RSA, UG, TZ)• Targeted dissemination to key stakeholders

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Grid planning issues (in a country with 4% rural electrification!)

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Decision tools are available• Master planning• Network Development

Plans• Energy Service

Development Pans

• Electrification modelling tool

• Cost benefit analysis (simplified)

• Detailed economic analysis

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Option three: Mduda mini-grid

Mduda north Mduda south

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Option five: Mduda mini-grid

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Cost and benefits of different options

05000

1000015000200002500030000350004000045000

Mini-Grid

only AA

Mini +SHS DD

SMG+SHS

SHS Diesel Grid

Capex/bp (R) Opex/bp x 10 (R)

Extract from a draft final report prepared for the DME on mini-grid CBA

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Summary of key advantages

• Large enough, and ‘dense’ enough to justify significant district based ‘energy service provider’

• Connection specific technology decisions• Grid growth risk management• More flexible accommodation of distributed generation• Shared management and field resources• Higher utilization of customer service points• Integrated funding/implementation framework• Lower cost access to capital (compared to consumer

finance)• Procurement efficiency• Development infrastructure in rural areas

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Key issues for Debate

• Can you see potential for IREU’s?• Main barriers/opportunities• Who can we engage with?• Are there particular areas where

– You are aware of current compatible work?– You feel we should place more emphasis?– Planned developments that could

accommodate IREU’s

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Thank you for your participation and contribution!

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Productive use of Renewable Energy• Key concern is that off-grid limits productive activity• Note: economic activity does not automatically follow grid

electrification– Access to markets, finance, skills, entrepreneurship development,

logistics, business support• Productive use with renewable energy is being demonstrated

– Concessions: shops, cell-phone charging, sewing, extended work hours

– Tourist facilities– Productive use container project – micro-enterprises established in

rural communities, bring a range of services and enabling livelihoods: sewing, ICT, retail, refrigeration, shoe repair, hair salons…

» Renewable and Hybrid Energy Access for Productive Use (CEF/SANERI funded work on frameworks/ strategies for Prod Use of Renewable Energy (see www.restio.co.za productive use projects)

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Productive Use Containers• Nuon/DGIS/Novib• RESTIO Energy/Rural

Wealth Creation Project• 6 ‘PUC’s in northern KZN• www.restio.co.za for more info