POLICY AND REGULATORY FRAMEWORKS FOR

ENERGY ACCESS IN AFRICA AND DEVELOPING

COUNTRIES

Training programme on

Energy Access for Sustainable Human Development

Krithika PR

20th November 2013

STRUCTURE OF THE PRESENTATION

1) Lessons from India’s energy access programmes

for designing energy access policies

2) Designing energy access policies

3) Key elements of the policy and regulatory

framework

4) Best practices from the global south

5) Case study

Grid extension

Off-grid

Electricity access

Access to cooking solutions

Energy Access policies encompass

POLICY FRAMEWORK FOR ENERGY ACCESS:

LESSONS FROM INDIA

INTRODUCTION

Electricity is a concurrent subject – both federal and provincial

governments can legislate and implement

Rural electrification level increased from 1500 villages in 1947

(at the time of independence) to more than half a million

villages in 2012 (~ 95 % of the villages)

Current rural electricity access at 95% of villages & 64% of

rural households

Installed capacity ~ 1362 MW in 1947 to more than 200,000

MW in 2012

KEY POLICIES DRIVING ENERGY ACCESS

A. Electricity access

1) Electricity Act (Over Arching Act)

Promotion of renewable energy and access to electricity for rural areas

via grid or decentralized system, by formulating suitable policies

Making rural electrification more effective, by formulating separate

policy for rural electrification

Exempt any entity from taking license to supply electricity to rural areas

Envisioning a comprehensive approach to be followed by SERCs to

promote financial and overall viability of renewable and micro grid

systems.

2) National Electricity Policy

3) National Tariff Policy

4) Rural Electrification policy

Several programmes and schemes for electricity access

B. Cooking access

National Project on Biogas Development: Started in 1981-82. NPBD has

incentives for the plant owners, implementing agencies and the turnkey worker

National programme on improved cooksotves – Provision of more efficient

cookstoves to rural households. Relaunched in 2009 under the guise of National

Biomass cookstove inititative

Free LPG connections to rural household: A proposal for providing one-time

financial assistance to BPL households for acquiring new LPG connections is

under government consideration (MoF 2011)

LPG penetration in rural areas: The Scheme aims at setting up small size LPG

distribution agencies in order to increase rural penetration and to cover remote

as well as low potential areas for all the locations having potential of 600 refill

sales per month

LESSONS FROM INDIA’S ENERGY ACCESS PROGRAMMES

Definition of electrification - target for village electrification and not

household electrification

Multiplicity of the programs/policy gaps - funding for each program

was not adequate

Implementation - not properly coordinated or managed at both

federal and provincial level

High cross subsidy - utilities lukewarm towards electricity supply to

rural areas

Emphasis is on top down planning

High push for grid extension

Poor access to credit/end-user finance

Kerosene subsidy biggest regulatory hurdle for transition to clean

lighting

Do not have convergence with other rural development programmes

HOW TO DEFINE AN ENERGY ACCESS POLICY?

Clean energy options mainstreamed into the national agenda and

planning process

Dynamic and evolving

Not be supply centric, rather framed with people ‘s needs and

demands as key considerations

Not over emphasizing grid, cooking access to be equally prioritized

Aim for parity between grid and off-grid options

DESIGNING ENERGY ACCESS POLICIES

POLICY

FOR

ENERGY ACCESS

Technical feasibility

Environmental

feasibility

Social sustaina

bility

Economic viability

Equity

Scalability

Policies for energy access should be designed in line with the

sustainability objectives

POLICY AND REGULATORY FRAMEWORK FOR

ENERGY ACCESS

Framework

Tariffs

Energy access

funds

Financial incentives

Energy subsidies

Cross subsidies

Targets

Technical standards

and guidelines

Key policy and regulatory

instruments

Actors

• Public

• Private

Legal and institutional

framework

• Acts

• Regulations

• Policies

Institutional capacity

• Clarity in roles

• Streamlined

• Capacity

Targets

Tariffs

Subsidies

Cross- subsidies

Financial incentives

Rural Electrification funds

Technical standards and guidelines

KEY QUESTION

While setting targets for providing access to energy

is important, how do you track progress and what can

be done to ensure accountability?

TARGETS FOR ENERGY ACCESS

Credible time bound targets are critical

to achieve universal energy access

Reduces uncertainty among project

developers, provides clarity to target

communities

Targets should be a part of the national

development strategies

Should be adapted to local conditions

Governments should define their own

targets (access to electricity, cooking

technologies etc) and strategies to

achieve these targets

• Targets enforced through

annual reporting requirements

of utilities as well as

performance contracts of key

officials – E.g. Kenya

• Electrification targets linked to

license renewals and tariff

increment. E.g. Kenya

licensing of mobile telephone

operators

• Indonesia has set a target of

95%–100% electrification of

households by 2025

• Philippines has set a target of

100% electricity access by 2020

Targets

Tariffs

Subsidies

Cross- subsidies

Financial incentives

Rural Electrification funds

Technical standards and guidelines

KEY QUESTION

What sort of regulatory framework is required for

the off-grid sector?

TARIFFS

Main objective of a tariff policy is to protect

the consumer while ensuring the financial

viability of a utility

Mandate of the regulator

Should ideally be designed to reflect the full

costs of the service

Full cost approach may involve significant

price increases for low income consumers

Different forms of tariff setting to keep them

affordable for consumers Lifeline tariffs

Zero basic charge

Inverted rates

High grid electricity tariffs

and connection fees in

Kenya.

The average power

tariff in SSA is around

$0.13/kWh , around

twice that found in

other parts of the

developing world!!

DIFFERENT FORMS OF TARIFFS

Inverted rates

Rising price per unit as usage

increases rather than a constant

or flat rate for all consumption.

Eg India, Indonesia

Discourage excessive and

inefficient use

Lifeline tariffs

Special rate for low-income

households.

Lower than the rate available to

other households for the same

level of service.

Revenue foregone from lifeline

rates recouped from govt

subsidies or standard rate

customers

Tariff Element

Basic charge

(no kWh)

Price

$2.00

First 200 kWh $0.03/kWh

Additional kWh $0.10/kWh

Inverted rates – Example

Source: ADB, 2010

Service element Standard

rate

Life line

rate

Basic charge (no

kWh)

$5 $3

First 200 kWh $0.05 $0.03

Additional kWh $0.10 $0.10

LIFELINE TARIFFS- EXAMPLES

Ghana

Lifeline tariffs were introduced in Ghana to the lowest income group, the

lifeline, offering a flat rate to customers consuming 50 KWh per month or

less

Created to minimize the cost to the utility of billing small accounts

Philippines

Lifeline rate for low-income captive market end users

Level of lifeline consumption and corresponding discount rates calculated

for each specific service franchise area based on the cost in that area of

2 lighting facilities at 20 watts each and a 50-watt radio used for a certain

no. of hours

Different levels of lifeline rates in each franchise area. Rate based on

consumption is generally <=50 kilowatts.

Energy Regulatory Commission has some discretion in setting the

maximum level of lifeline consumption

OTHER NON-TARIFF MEASURES

Load limiters Limits the level of current a consumer receives from a power line

Utilities install load limiters in the households of low-income consumers, either as

part of their line-extension policy or their rate design

Limit the amount a utility needs to reserve for low-income consumers

Pre-paid meters Require the consumer to buy a prepaid card for electricity and either plug it into

the electric meter or enter a numerical PIN that records the value of prepayment

on the card.

When the prepaid amount is exhausted, the electricity stops flowing until a new

card is purchased.

E.g. Philippines, Singapore, South Africa

Targets

Tariffs

Subsidies

Cross- subsidies

Financial incentives

Rural Electrification funds

Technical standards and guidelines

KEY QUESTION

How can subsidies be designed more effectively,

which do not merely focus on capacity addition

rather reward performance?

SUBSIDIES Well-designed, targeted subsidies are

necessary to ensure affordability to consumers

Poorly designed subsidy schemes can

undermine the financial health of power utilities

Generally justified as a response to inequality,

however the net effect can be positive or

negative depending on the intended goals of the

subsidy, and the way a subsidy is implemented

If subsidies are provided to increase connections

to poor, clear criteria defined for identifying poor

customers

Fuel Subsidies – LPG subsidies: India,

Kerosene subsidies: Indonesia

Electricity subsidies - India

• Power to the Poor” (P2P) , Lao

PDR

• Subsidized financing mechanism

implemented by Electricité du

Laos (EdL)

• Provides affordable connection

and indoor wiring to poor

households

• Designed with a gender focus-

targets female-headed poor

households.

• A no-cost “basic” 3/9 Ampere

meter (low voltage) to use 2 light

bulbs and a small electrical

appliance such as a radio

• Initially pay approx $20, can

receive interest free credit of $80

to be paid in equal installments

over three years

EXAMPLES FROM GLOBAL SOUTH

Indonesia (Subsidies for

electrification)

State electricity utility used annual

budgetary allocations to fund

extensions of service to low-income

households.

Government-subsidized service

available only for the lowest level of

service.

Utility responsible for installing a load

limiter in the affected households,

permitted approximately 480 watts of

service without requiring households

to pay a line extension or connection

charge.

India (Fuel Subsidy)

Subsidized Kerosene and LPG to the

domestic consumers sold in small cylinders

in India (14.2 kg and 5 Kg).

LPG is presently priced at approximately

50% of the total supply cost in major cities

such as Delhi

Subsidized LPG is generally only available in

large towns and cities

LPG subsidies misdirected and

mistargeted

Primarily benefit higher-income

households as lion’s share of the

subsidies are allocated for urban areas

SUBSIDIES FOR RURAL ELECTRIFICATION

SCHEMES, INDIA

Scheme Target under the

scheme

Subsidy

vehicle

Amount of central

financial assistance

RGGVY 100% household

electricity access

throughout India by

2012

Capital

subsidy

90% grant is provided by

the Government of India

10% as loan by REC to the

state governments

VESP 1000 villages to be

electrified within the

current five-year

plan

Capital

subsidy

Operational

subsidy for

first two years

90% of the total project

cost

Maximum CFA per

household is INR20,000

10% of the total project

cost

RVE Electrification of

villages and

hamlets that are

not likely to

receive grid

connectivity

Capital

subsidy

subject to

upper limits

90% of total costs of

electricity generation

systems

Targets

Tariffs

Subsidies

Cross- subsidies

Financial incentives

Rural Electrification funds

Technical standards and guidelines

CROSS-SUBSIDIES

Cross- subsidies are another form of subsidies

In many developing countries residential consumers are often

cross-subsidized by industrial consumers. Eg India, Thailand,

Vietnam

Indian Electricity Act 2003 initially had a provision to eliminate

cross-subsidies which was later amended recognizing that cross-

subsidies cannot be completely eliminated, only gradually reduced

over time.

SSA countries : A snapshot of Electricity

and fuel subsidies

Source: IMF, 2013

Ethiopia

Kenya

Botswana

S Africa

Mozambique

Tanzania

Uganda

Zambia

Malawi

Ethiopia

Uganda Kenya

Tanzania

Malawi

Swaziland

Mozambique

Zambia

Botswana

Swaziland S Africa

Targets

Tariffs

Subsidies

Cross- subsidies

Financial incentives

Rural Electrification funds

Technical standards and guidelines

FINANCIAL INCENTIVES

Financial incentives (tax exemptions, duty

exemptions etc.) are essential to encourage

the transition to clean cooking and lighting

Eg India’s Accelerated Depreciation for wind

energy helped expand the market and

encouraged private investment

Key elements of

financial incentive

programmes

• Funding stability and

duration

• Incentive amount

• Application process

• Quality assurance

• Consumer education

and awareness

Targets

Tariffs

Subsidies

Cross- subsidies

Financial incentives

Rural Electrification funds

Technical standards and guidelines

RURAL ELECTRIFICATION FUNDS

Pool of funds dedicated to subsidize rural service esp for grid extension.

Calculated as a percentage levy or fixed amount on the electricity bill. Eg

Zimbabwe has a rural electrification fund which is funded from 6% levy on

electricity sales

Cambodia with very low rates of electrification has also established a fund

which is funded by the Govt and World Bank. Provide grants to private rural

energy enterprises.

Tanzania and Uganda have also set up REFs

Tanzania’s REF is funded

Annual Budgetary allocation

Contribution from international donor organizations

Levies of up to 5% on electricity sales from national Grid

Levies of up to 5% on the specific isolated systems including systems for private consumption

Targets

Tariffs

Subsidies

Cross- subsidies

Financial incentives

Rural Electrification funds

Technical standards and guidelines

TECHNICAL STANDARDS AND GUIDELINES

Standards should be purposefully designed for rural contexts as

existing regulations for large systems may not be applicable for small

decentralized systems

Interconnection standards increase the chance of existing assets to

continue operation given right regulations

To ensure proper system design and installation, compliance to

standards may be one of the criteria for fund disbursal

GIVEN THE RIGHT POLICIES, HOW DO WE

PLAN?

INTEGRATED PLANNING FOR ENERGY ACCESS

AND HUMAN DEVELOPMENT

KEY QUESTION

What kind of approaches? Top-down or bottom up

or a combination of the two?

How can we achieve centralized target setting

using bottom up planning and decentralized

implementation?

WHY IS INTEGRATED PLANNING REQUIRED?

Household energy remains a

fragmented field with multiple actors,

lacking a cohesive strategy

Strong alignment across policy

domains important to accelerate the

adoption of cleaner fuels.

Brazil ‘s Northeast Rural Poverty

Alleviation Program

Uganda ‘s Energy for Rural

Transformation program explicitly

features electrification of remote health

clinics, schools, and water pumping via

solar photovoltaic systems

Energy access

Education

Environment

Agriculture

Water

Health

Rural development

P o l i c y

C o h e r e n c e

HOW DO WE INTEGRATE PLANNING?

Source- UNESCAP, 2003

KEY POINTS TO REMEMBER

There is no one size fits all solution to policymaking in energy access.

Policies for energy access should be designed in line with the sustainability objectives in

mind

Clear energy access targets should be set by the governments since it is an important

benchmark for tracking progress.

Lifeline tariffs and subsidies are an important part of energy access policies, however each

has its pros and cons.

Subsidies and cross-subsidies though having welfare impacts can significantly distort the

market if mistargeted

Dedicated agency for rural electrification with ring-fenced rural electrification funds is

important

Energy Access should not be treated as a standlaone sector since it has cross cutting

linkages with other development outcomes.

Bringing about an integration in policies requires coordinated planning and implementation

between different ministries and state departments with clear delineation of roles and

responsibilities.

GROUP ACTIVITY – CASE STUDY

Context

Country X is a low income developing country with insufficient generating

capacity , significant peak and energy shortages, low levels of electricity access

(<20%), and a high proportion of people depending on traditional solid fuels. The

country has significant potential for solar and micro hydro. The power sector is

dominated by the public sector with very limited private participation. The country

has committed to the SE4All objective of extending universal energy access by

2030.

Questions

What approach would you propose to take to increase energy access rates?

(Grid, off-grid ?)

What policy instruments and regulatory principles will you adopt given your

approach? Why?

What implementation challenges do you foresee in translating your policy to

action?

Present a SWOT analysis

GROUP ACTIVITY 2

A low income developing country Y with poor levels of energy access

is trying to formulate a Poverty Strategy Reduction Paper and has

identified the following key areas to focus on- food security and

livelihood generation. As a policymaker how would you define a

policy which takes into scalability and social sustainability elements

into account? Discuss and elaborate your strategy.

GROUP ACTIVITY 3

A low income developing country Y with poor levels of

energy access is trying to improve the quality of

education which has high dropout rates, low literacy

levels and particularly dismal female literacy levels.

As a policymaker how would you define a policy

which takes into equity and environmental

sustainability into account? Discuss and elaborate

your strategy.

National Energy Policy statements on gender and women in

Tanzania

• Promote gender equality within the energy sub-sector on both the

demand and supply side.

• Facilitate education and training for women in all energy aspects.

• Promote awareness on gender issues concerning men and women’s

social roles in the energy

sector, including training on appropriate technologies.

• Promote awareness and advocacy on gender issues in the energy

sector.

Source: National Energy Policy 2003