Difference between revisions of "NAE Case Study: Cambodia “Light Touch” Regulation"

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<span dir="auto">Cambodia</span>[[File:Back to NAE Overview Page.png|center|800px|NAE Overview Page|alt=NAE Overview Page|link=National Approaches to Electrification – Review of Options]]
 
<span dir="auto">Cambodia</span>[[File:Back to NAE Overview Page.png|center|800px|NAE Overview Page|alt=NAE Overview Page|link=National Approaches to Electrification – Review of Options]]
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<p style="text-align: center;"><span style="color:#003399;">'''<u>Category Dashboard:</u>'''{{NAE Case Study Table Cambodia}}</span></p>
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{{NAE Case Study Table Cambodia}}
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= Description<br/> =
 
= Description<br/> =
  
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The Luz para Todos programme was created in 2003 and initially planned for completion in 2014 (subsequently extended to 2018).&nbsp; The Government mandated & funded the&nbsp; programme, which obligated grid distribution concessionaires to provide electricity access to previously un-electrified households.&nbsp; The programme was coordinated by the Ministry of Mines and Energy and managed by Eletrobrás.&nbsp; It was implemented by distribution companies under the control of Eletrobrás and privatised and federal power supply companies. The cost of the programme was US$5.7 billion, of which US$4.2 billion was paid by the Federal Government.&nbsp; The remaining cost was generally divided equally between the federal states and municipalities (US$750m), and the power supply companies (US$750m). Where initial electrification rates were very low, up to 90% of the supply company's total investment was subsidised through national funds. Electricity consumers did not have to pay for any network expansions.&nbsp; In this way, new connections were financed from the public sector budget, with the State government contracting Eletrobras to provide the required service&nbsp;<span style="font-size: 0.85em;">for end-users.&nbsp; Priority targets for implementation were those zones with a low Human Development Index (HDI), inhabited by families with&nbsp;</span><span style="font-size: 0.85em;">low purchasing power.</span>
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Mini-grids started to operate in Cambodia soon after the country’s civil war ended in 1975. Government capacity was very low and unable to reach most of the countryside. In this completely unserved and unregulated environment, people started to buy generators and sell power to their neighbours. Mini-utilities sprang up in many villages. Since those early days, the regime in Cambodia has evolved to regulate these enterprises, but with a light touch that allows the enterprises to prosper and grow. The state-owned utility Electricite du Cambodge (EdC) serves approximately 10% of the population with most of its grid infrastructure and customers located in and around Phnom Penh.&nbsp; Small power providers have been encouraged to establish distribution networks and are now licensed by the Electricity Authority of Cambodia, allowing them to borrow from commercial banks. In Jan 2016, 337 companies had been licensed to build distribution systems, outside the grid owned by EdC.&nbsp; Tariffs are set by the Electricity Authority of Cambodia (EAC) in a simple and transparent manner using a price adjustment formula based on the cost of diesel/HFO, which accounts for 95% of electricity generation in Cambodia.&nbsp; The regulatory regime also provides a framework that allows off-grid systems to connect to larger utilities,&nbsp;<span style="font-size: 0.85em;">purchase cheaper power from those utilities, and then on-sell that power to their customers at a regulated distribution margin.</span>
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= Context =
 
= Context =
  
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Brazil has a generation capacity of about 145GW, with ~65% of installed capacity based on hydropower. Thermopower plants account for 28%, wind power for 6%, nuclear power for 1.5% and solar power for only 0.02%.&nbsp; Therefore Brazil has more than 70% of its power generation based on renewable sources (cf the world average of 80% power from fossil fuels).&nbsp; Currently, 99% of the population is connected to an electricity supply, and Brazil rates as the world's ninth largest energy consumer.&nbsp; Before the Light for All programme (starting in 2003), electricity connections were based on market demand with infrastructure costs being recovered from the fees charged to end-users as well as some general taxes.&nbsp; A previous market-driven programme (Light in the Countryside), launched in 1999, had little impact because poor rural families were unable to afford the associated costs (these end-user charges eventually constituted critical barriers to universal access to electricity).&nbsp; With Light for All, the State funds the entire programme through subsidies (from general taxation), which was justified by the aims to increase national development, generate opportunities, and promote citizenship.
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In 2016, 80% of villages and 65% of households had access to grid quality electricity, with the Government aiming to achieve electricity access for all villages by 2020.&nbsp; During the 1970s, the electricity sector was seriously damaged by the civil war when there was only one transmission line in Cambodia connecting the Kiriom I Hydropower Station to the capital Phnom Penh. This ceased to operate in 1973 when most generation, transmission and distribution facilities were damaged or destroyed.&nbsp; Today, there is still no national electricity network and power is supplied via 24 small isolated electricity systems.&nbsp; Statistics released in January 2016 showed that Cambodia consumed 1,985 megawatts of electricity in 2015. Local production amounted to 1,569 megawatts. Electricity was imported from Vietnam (277 MW), Thailand (135.5 MW) and Laos (4 MW).&nbsp; 42% of electrified households outside Phnom Penh are served by decentralized mini-grid systems.&nbsp; Most of these are operated by small power providers in rural communities, are privately run, and are profitable. Often these local companies use diesel for their mini-grids since the fuel is readily available in local markets and runs in small generators that are easy to operate and have fairly low capital costs.&nbsp; (Although Cambodia is endowed with an abundance of hydropower resources, it still depends heavily on fuel-based engines or generators to produce much electricity).&nbsp; However, the Government is committed to increased use of renewable energy, with increased use of hydro and other sources; the first solar farm (10MW in Bavet) is planned to be connected to the grid this year. As part of the Cambodian government’s policy to expand access to electricity, all mini-grids in the country now receive a $45 output-based subsidy&nbsp; for each additional residential customer connected (which is released once the mini-utility provides proof that the connection has been made). These funds allow companies to build out their distribution network further, since it becomes profitable to extend service to lower-income and more remote areas than otherwise possible.
  
 
= Objectives =
 
= Objectives =
  
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The original goal of the programme was to guarantee access to energy in all rural zones in 2008, with an intermediate objective of 90% in 2006. This was expected to involve&nbsp; 2 million rural connections, together with associated internal appliance kits (plugs lamps etc), at no cost to the end-user .&nbsp; Broader aims were the socio-economic development and poverty reduction expected to result from the provision of free access to electricity infrastructure.
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A priority goal of the government is to reduce poverty, and a key strategy for this is the development of sustainable and affordable energy supplies for all its constituents. A particular objective was to provide the best enabling environment for mini-grids to prosper and grow, supplying a significant proportion of the population that live outside the capital city, Phnom Penh.&nbsp; This involved developing market conditions that motivate the sustainable introduction of mini-grid suppliers.&nbsp; The country has set a specific target of 100% electrification by 2020, with distribution lines reaching all villages by 2015.&nbsp; In practice, electricity had reached only 66% of villages in 2015.
  
 
= Legal Basis =
 
= Legal Basis =
  
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Luz para Todos was created as a government programme by Decreto Nº 4.873, November 11th 2003. It was implemented by a range of distribution companies that included operators controlled by Eletrobras, federal power supply companies, and private co-operatives.&nbsp; These companies were contracted as concessionaires by the Government (MME), allocated specific target communities, provided with the necessary budget, and set target completion dates; their progress was then overseen by the Electricity Regulator (ANEEL) and by regional committees.
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The national “Law on Electricity” was adopted by the National Assembly on November 6, 2000 and then promulgated by Royal Decree on February 2, 2001. This law covers all activities related to the supply, provision of services and use of electricity, and other associated activities of the power sector, allowing licensing of&nbsp; isolated and grid-connected mini-grids and distribution systems.&nbsp;&nbsp;
  
 
= Institutions, Roles and Responsibilities<br/> =
 
= Institutions, Roles and Responsibilities<br/> =
  
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The Ministry of Energy and Mines (MME) has the overall responsibility for policy setting in the electricity sector while ANEEL, which is linked to MME, is the Electricity Regulatory Agency created in 1996. ANEEL's function is to regulate and control the generation, transmission and distribution of power. The National Council for Energy Policies (CNPE), is an advisory body to the MME in charge of approving supply criteria and "structural" projects while the Electricity Industry Monitoring Committee (CMSE) monitors supply continuity and security. The Operator of the National Electricity System (ONS) is a non-profit private entity created in 1998 that is responsible for the coordination and control of the generation and transmission installations in the National Interconnected System (SIN). The ONS is under ANEEL's control and regulation.&nbsp; The Power Commercialization Chamber (CCEE), successor of MAE (Mercado Atacadista de Energia Electrica), is the operator of the commercial market. The initial role of the operator was to create a single, integrated commercial electricity market, to be regulated under published rules. This role has become more active since now CCEE is in charge of the auction system. The rules and commercialization procedures that regulate CCEE's activities are approved by ANEEL.&nbsp; Finally, the Power Research Company (EPE) was created in 2004 with the specific mission of developing an integrated long-term planning for the power sector in Brazil. Its mission is to carry out studies and research services in the planning of the energy sector in areas such as power, oil and natural gas and its derivatives, coal, renewable energy resources and energy efficiency, among others.&nbsp; The Light for All programme is coordinated by MME in association with ANEEL, and is managed by the national state-owned utility, Eletrobrás.&nbsp;&nbsp; The distribution concessions are owned privately, by the state or by cooperatives, but overseen by Eletrobrás, which owns much of the generation and transmission, and some distribution.&nbsp; ANEEL authorises concessions and sets targets. Eletrobrás manages programme implementation and oversees the concession contracts between MME and the distributors. Funding is provided by federal and state governments.
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There are three main players who have considerable power in the electricity sector in Cambodia: the Ministry of Industry, Mines and Energy (MIME), the Electricity Authority of Cambodia (EAC), and the state owned utility Electricite du Cambodge (EdC).&nbsp; Electricity was first introduced to Cambodia in 1906 by Compagnie des Eaux et Electricité (CEE), Union d’Electricité d’Indochine (UNEDI) and Compagnie Franco – Khmer d’Electricité (CFKE). CEE was responsible to supply the electricity to Phnom Penh and suburbs, while UNEDI operated throughout country except Battambang province, which was supplied by CFKE.&nbsp; In 1958, the Government purchased CEE’s and UNEDI’s concession rights to form the Electricité du Cambodge to generate, transmit and distribute electricity for Phnom Penh and provinces throughout the country.&nbsp; During the long war, EdC’s facilities were destroyed, but it remains the most influential of the three key players in the electricity market.&nbsp; As a commercial entity, EdC is required to operate in accordance with market demand and seek to earn a profit.&nbsp; It must prepare, build, own, finance, lease and operate power generation and substations, transmission lines, distribution networks and other infrastructure necessary.&nbsp; This involves the operation of 24 decentralised grid networks.&nbsp; Other players in the market include over 300 IPPs, REEs, and other licensees that import electricity from neighbouring countries or own stand-alone diesel generators.&nbsp; MIME is mainly responsible for the formulation of policies and strategies.&nbsp; EAC was established by the Electricity Law in 2000 as an autonomous public agency with the purpose of regulating the electricity power services, and was granted the right and obligation to penalize, if necessary, the supplier and consumer of electricity in relation to electricity generation and supply facilities. Amongst other responsibilities, EAC issues five types of license for the supply of electricity (consolidated, generation, distribution, retail and special purpose transmission licenses), approves tariff rates and charges, oversees the implementation procedures and standards, and ensures transparency by facilitating information to the public about its activities.
  
 
= Interventions<br/> =
 
= Interventions<br/> =
  
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The programme involved provision of energy to remote communities through grid extension, decentralised grids, and stand-alone systems.&nbsp; The local electric utilities in the target regions were requested by Government to prepare Annual Programs for Service Expansion.&nbsp; The distribution concessionaires (which included public sector operators linked to Electobras, private suppliers, and co-operatives) were selected by MME and endorsed by ANEEL. For grid-based connections, the utilities auctioned electricity to the distributors, enabling a fully decentralised approach for the service and tariffs offered to end-users.&nbsp; The Government placed an obligation on the distributors (concessionaires) to deliver universal rural energy access, with all connection costs subsidised by the government. Approximately 72% of the programme's total funding came from two sources, namely the Reserva Global de Reversão (RGR) and the Conta de Desenvolvimento Energético (CDE). The RGR was a fund providing loans, collected from the concession fees and fines paid by distribution companies. The CDE was a fund providing subsidies, collected from a tariff paid by all electricity consumers. The remaining funding was generally divided equally between the federal states and municipalities (14%) and the power supply companies (14%). However, where initial electrification rates were very low, up to 90% of the distributor's total investment was subsidised through national funds. Electricity consumers did not have to pay for any upfront charges.
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The Government's approach was based upon an intentional lack of restrictions such as exclusive franchises, licensing, and tariff regulation.&nbsp; When a central utility does not have the incentives, cost structure, or capacity to reach grid extension goals, exclusive or monopoly rights can be counterproductive.&nbsp;&nbsp; It was recognised that mini-utilities thrive when they are free from onerous licensing and permitting barriers (even where mini-utilities are not blocked by exclusive franchises, they are still often stymied by onerous licensing procedures and conditions). Cambodia adopted a light regulation approach that meant mini-grid enterprises could prosper and grow. Licenses were granted, allowing mini-utilities to borrow from commercial banks.&nbsp; A regulation framework was introduced to allow off-grid systems to connect to larger utilities, purchase cheaper power from those utilities, and then on-sell that power to their customers at a regulated distribution margin.&nbsp; As part of the Cambodian government’s policy to expand access to electricity,&nbsp; mini-grids in the country are eligible to receive a $45/connection output-based subsidy to offset the upfront capital costs - this government policy has successfully attracted businesses to the mini-utilities space.&nbsp; The Government has also established a Rural Electrification Fund (REF) with the objective to facilitate access to electricity infrastructure and provide a secure, reliable, environmentally safe, and sustainable energy supply of various types, at reasonable and affordable price.&nbsp; Mini hydro plants (and also solar home systems) are eligible to receive subsidies up to 25% of total investment costs.
  
 
= Impacts Achieved<br/> =
 
= Impacts Achieved<br/> =
  
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Almost 3.4m previously un-electrified households (over 15m people) were connected.&nbsp; By 2014, the Luz para Todos programme had benefited (according to Government indicators) at least 3,374,248 households, 68% more than the original target of 2 million families.&nbsp; This included over 261,000 families in poorer rural areas that previously had no electricity.&nbsp; The programme also had a positive impact on the social and economic development of assisted communities. (A subsequent programme expansion in December 2014, through the Decreto Nº 8.387, aims to give access to an additional 206,200 households (one million people) by December 2018.&nbsp; About 100,000 of those people are in the Amazon and their needs will be met with standalone solar PV systems).
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After a little more than 15 years of development, mini-utilities serve 28% of the rural population on a commercial basis.&nbsp; According to the current national Rural Electrification Master Plan (REMP), the total cost to electrify all villages (including private investment and public subsidy) is about US$ 427 million or US$ 490 per household for future connections, with 872,000 households to be involved. A total of 272,000 households will be electrified in the off-grid areas by decentralized mini-grids and solar battery charging by the target year 2020. The gross investment costs will amount to about $147 million. The remaining villages will be connected through grid extension.&nbsp;
  
 
= Lessons Learned<br/> =
 
= Lessons Learned<br/> =
  
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The programme initially fell behind annual targets due to inexperience, political interference and shortages of materials and skills.&nbsp; The budget overshot by 67% (due to underestimation of demand and costs). Cost recovery by concessions, and hence the longer-term sustainability of the programme (and financial viability of concessionaires), was in doubt due to tariff constraints (especially in areas with a large proportion of remote users and those on social tariffs). It was also not clear whether the rate of additional generation was matching grid extension/ connections/ demand. Though off-grid options were included in programme, they were rarely used in practice (even where they would have been more economic) due to the fixed financing/subsidy structure favoured by Eletrobras (e.g. there was no consideration of cross-subsidy).&nbsp; There was also a lack of concessionaire awareness/experience and consequently interest in off-grid options.&nbsp; Despite these early concerns, the program exceeded expectations and targets.&nbsp; Many factors contributed to this success: the electricity access provided and maintained over time for more than 95% of the national territory; a strong regulatory framework in the energy sector; the expertise of electricity distribution companies; the role of Eletrobras; the availability of resources from electricity sectorial funds to finance the program and reduce tariff impacts on consumers; the industrial base in the electricity distribution system and the use of local workforce; positive reaction to the provision of electricity without costs to the targeted population.
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The success of mini-utilities in Cambodia is due mainly to a regulatory regime that allows them to exist. This illustrates a regulatory approach&nbsp; that may be valuable for other governments looking to facilitate the operation of local mini-grids in unserved areas.&nbsp; One important need for future electricity grid integration is the development of standards, which has been achieved in Cambodia with international donor support (provided by JICA to prepare the General Requirements of Electric Power Technical Standard, GREPTS, which was adopted in 2004).&nbsp; A key lesson from Cambodia is simply the value of removing restrictions such as exclusive franchises, licensing, and tariff regulation.&nbsp;&nbsp; Cambodia may be an extreme case, and there is no need to abandon all regulation to get mini-grids working. What is essentially required is to legalize their operations to put them on a sound regulatory footing so that they can do the essentials, such as raising debt.&nbsp; Most mini-utilities cannot offer to connect customers for little or no up-front payment - they are simply unable to finance such large capital outlays on their own. Some financial support from the government has been needed to attract businesses to the mini-utilities space.&nbsp; In many countries, regulation has been used to introduce tariff caps intended to counter the natural monopoly of typical grid utilities, and to make electricity affordable for the poor. But often they have the opposite effect by making it unviable for mini-utilities to enter the market. Mini-utilities typically have a higher cost of service than large integrated grids, but where they are used solely for lighting purposes they compete with solar home systems and lanterns.&nbsp; Regulation can then fail to address the practical needs, restricting rather than facilitating market development, and therefore be unnecessary.&nbsp; For example, in Cambodia, mini-utilities began and flourished without any tariff regulation (though the need for some structure, as the operation of mini-grids expanded, was ultimately provided from 2000 by EAC).
  
 
= Effectiveness<br/> =
 
= Effectiveness<br/> =
  
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The Luz para Todos programme has successfully brought electricity to nearly 3.4m households at a cost of US$5.7bn, which equates to US$1680 per household.&nbsp; (Some of these costs will be recovered through electricity tariffs but users were apparently not required to pay any additional up-front costs). This was based predominantly on grid connection, involving significant infrastructure extension and installation cost but providing a high level of access (expected to be Tier 4-5 under the SEforAll multi-tier framework), sufficient to support a range of productive uses and hence economic development (though reliability and quality may suffer if generation construction has not kept pace with grid extension). The programme was centrally-driven, primarily by the national electricity utility, with the result that the focus has been on grid extension, despite the growing cost - a more balanced grid/mini-grid/off-grid approach may have been more cost-effective.&nbsp; The future expansion plans involve 50% of the connections being met with stand-alone systems that will help to achieve the "Light for All" objective, but may provide a lower level of access.&nbsp;&nbsp; There is little evidence of customer engagement (in terms of awareness) or the development of local support structures (such as capacity building for local supply/maintenance), which may be a limitation to the longer-term sustainability of the programme.
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The approach adopted by the Cambodian government (enforced to a large extent due to lack of capacity following the civil war) has avoided restricting the growth of the market for mini-grids, which are expected to serve 31% of villages with grid-quality electricity by 2020.&nbsp; Historically, the average cost of connection to a decentralised mini-grid has been&nbsp; ~US$540/household, which has been made affordable for end users (though whether this includes the initial system installation cost, or just the incremental cost per connection, is not clear).&nbsp; The Rural Electrification Fund (with support from the International Development Association and the Global Environment Facility) has helped to reduce the costs to the target customers, and the government subsidy of US$45/household, made available to Rural Electrification Enterprises for an additional 50,000 connections, has stimulated significant growth.&nbsp; The combination of clear Government targets and limited financial incentives to offset capital costs, has seen the development of an effective commercial mini-grid sector without the need for extensive regulation.
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= Overview of Other Country Case Studies =
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{{NAE Case Studies Navigation Table}}
  
 
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= References =
 
= References =
  
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*[http://energy-access.gnesd.org/cases/32-energy-access-program-in-brazil-lighting-for-all.html http://energy-access.gnesd.org/cases/32-energy-access-program-in-brazil-lighting-for-all.html]
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*<div>[http://www.aseanenergy.org/articles/universal-access-to-energy-in-asean-case-of-cambodia-and-lao-pdr/ http://www.aseanenergy.org/articles/universal-access-to-energy-in-asean-case-of-cambodia-and-lao-pdr/]</div>
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*[http://www.ep.liu.se/ecp/057/vol12/057/ecp57vol12_057.pdf http://www.ep.liu.se/ecp/057/vol12/057/ecp57vol12_057.pdf].
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<div>
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*G20 (2015), G20 Energy Access Action Plan: Voluntary Collaboration on Energy Access [https://www.se4all-africa.org/fileadmin/uploads/se4all/Documents/guidelines_policy_and_hub_docs/23.09.2015-G20_Energy_Access_Action_Plan-_Final.pdf https://www.se4all-africa.org/fileadmin/uploads/se4all/Documents/guidelines_policy_and_hub_docs/23.09.2015-G20_Energy_Access_Action_Plan-_Final.pdf]
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*[http://eac.gov.kh/wp-content/uploads/2015/07/report-2014en.pdf http://eac.gov.kh/wp-content/uploads/2015/07/report-2014en.pdf]<br/>
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*[https://www.iea.org/policiesandmeasures/pams/brazil/name-24303-en.php https://www.iea.org/policiesandmeasures/pams/brazil/name-24303-en.php]
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*[[Cambodia Energy Situation|https://energypedia.info/wiki/Cambodia_Energy_Situation]]
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*IEA, (2010), Comparative Study on Rural Electrification Policies in Emerging Economies [https://www.iea.org/publications/freepublications/publication/rural_elect.pdf https://www.iea.org/publications/freepublications/publication/rural_elect.pdf]
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*[http://www.sciencedirect.com/science/article/pii/S1364032111005776 http://www.sciencedirect.com/science/article/pii/S1364032111005776]
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*IED. 2013. Low Carbon Mini Grids. Identifying the gaps and building the evidence base on low carbon mini-grids [http://www.ied-sa.fr/index.php/fr/ressources-documentaires/publications/send/2-publications-ied/19-gmg-dfid-ied-nov-2013-vol-1.html http://www.ied-sa.fr/index.php/fr/ressources-documentaires/publications/send/2-publications-ied/19-gmg-dfid-ied-nov- 2013-vol-1.html]
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*[http://www.wame2015.org/case-study/989/ http://www.wame2015.org/case-study/989/]
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*[http://www.irena.org/eventdocs/Cambodia presentation.pdf http://www.irena.org/eventdocs/Cambodia presentation.pdf]
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*[http://www.reegle.info/policy-and-regulatory-overviews/KH http://www.reegle.info/policy-and-regulatory-overviews/KH]
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*[http://ref.gov.kh/page/admin/public/asset/article-asset/REF report 2016_Eg final.pdf http://ref.gov.kh/page/admin/public/asset/article-asset/REF report 2016_Eg final.pdf]
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*World Bank. 2014. From the Bottom Up. How Small Power Producers and Mini-Grids Can Deliver Electrification and Renewable Energy in Africa. [http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+sustainability/learning+and+adapting/knowledge+products/publications/publications_report_gap-opportunity http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+sustainability/learning+and+ adapting/knowledge+products/publications/publications_report_gap-opportunity]
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*[http://documents.worldbank.org/curated/en/362361468016738691/pdf/E27230EAP1EMP110Box358316B01PUBLIC1.pdf http://documents.worldbank.org/curated/en/362361468016738691/pdf/E27230EAP1EMP110Box358316B01PUBLIC1.pdf]
  
 
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Latest revision as of 13:30, 16 July 2018

Cambodia

NAE Overview Page
TechnologyTechnology: Grid ExtensionTechnology: Grid-Connected Mini-Grid/Distribution SystemTechnology: Isolated Mini-GridTechnology: Standalone SystemsDelivery ModelDelivery Model: PublicDelivery Model: Private (Non-Government)Delivery Model: Public-Private PartnershipLegal BasisLegal Basis: ConcessionLegal Basis: LicenseLegal Basis / Price/Tariff Regulation: UnregulatedPrice/Tariff RegulationPrice/Tariff Regulation: UniformPrice/Tariff Regulation: IndividualFinanceFinance: PrivateFinance : UserFinance: Grants & SubsidiesFinance: Cross-SubsidiesFinance: Tax ExemptionsFinance: GuaranteesNon-Financial InterventionsNon-Financial Interventions: Direct Energy Access ProvisionNon-Financial Interventions: Institutional RestructuringNon-Financial Interventions: Regulatory ReformNon-Financial Interventions: Policy & Target SettingNon-Financial Interventions: Quality & Technical StandardsNon-Financial Interventions: Technical AssistanceNon-Financial Interventions: Capacity Building & Awareness RaisingNon-Financial Interventions: Market InformationNon-Financial Interventions: Demand PromotionNon-Financial Interventions: Technology Development & AdoptionNon-Financial Interventions: National Energy PlanningNAE Case Study Table Cambodia.png]]


Description

Mini-grids started to operate in Cambodia soon after the country’s civil war ended in 1975. Government capacity was very low and unable to reach most of the countryside. In this completely unserved and unregulated environment, people started to buy generators and sell power to their neighbours. Mini-utilities sprang up in many villages. Since those early days, the regime in Cambodia has evolved to regulate these enterprises, but with a light touch that allows the enterprises to prosper and grow. The state-owned utility Electricite du Cambodge (EdC) serves approximately 10% of the population with most of its grid infrastructure and customers located in and around Phnom Penh.  Small power providers have been encouraged to establish distribution networks and are now licensed by the Electricity Authority of Cambodia, allowing them to borrow from commercial banks. In Jan 2016, 337 companies had been licensed to build distribution systems, outside the grid owned by EdC.  Tariffs are set by the Electricity Authority of Cambodia (EAC) in a simple and transparent manner using a price adjustment formula based on the cost of diesel/HFO, which accounts for 95% of electricity generation in Cambodia.  The regulatory regime also provides a framework that allows off-grid systems to connect to larger utilities, purchase cheaper power from those utilities, and then on-sell that power to their customers at a regulated distribution margin.

Context

In 2016, 80% of villages and 65% of households had access to grid quality electricity, with the Government aiming to achieve electricity access for all villages by 2020.  During the 1970s, the electricity sector was seriously damaged by the civil war when there was only one transmission line in Cambodia connecting the Kiriom I Hydropower Station to the capital Phnom Penh. This ceased to operate in 1973 when most generation, transmission and distribution facilities were damaged or destroyed.  Today, there is still no national electricity network and power is supplied via 24 small isolated electricity systems.  Statistics released in January 2016 showed that Cambodia consumed 1,985 megawatts of electricity in 2015. Local production amounted to 1,569 megawatts. Electricity was imported from Vietnam (277 MW), Thailand (135.5 MW) and Laos (4 MW).  42% of electrified households outside Phnom Penh are served by decentralized mini-grid systems.  Most of these are operated by small power providers in rural communities, are privately run, and are profitable. Often these local companies use diesel for their mini-grids since the fuel is readily available in local markets and runs in small generators that are easy to operate and have fairly low capital costs.  (Although Cambodia is endowed with an abundance of hydropower resources, it still depends heavily on fuel-based engines or generators to produce much electricity).  However, the Government is committed to increased use of renewable energy, with increased use of hydro and other sources; the first solar farm (10MW in Bavet) is planned to be connected to the grid this year. As part of the Cambodian government’s policy to expand access to electricity, all mini-grids in the country now receive a $45 output-based subsidy  for each additional residential customer connected (which is released once the mini-utility provides proof that the connection has been made). These funds allow companies to build out their distribution network further, since it becomes profitable to extend service to lower-income and more remote areas than otherwise possible.

Objectives

A priority goal of the government is to reduce poverty, and a key strategy for this is the development of sustainable and affordable energy supplies for all its constituents. A particular objective was to provide the best enabling environment for mini-grids to prosper and grow, supplying a significant proportion of the population that live outside the capital city, Phnom Penh.  This involved developing market conditions that motivate the sustainable introduction of mini-grid suppliers.  The country has set a specific target of 100% electrification by 2020, with distribution lines reaching all villages by 2015.  In practice, electricity had reached only 66% of villages in 2015.

Legal Basis

The national “Law on Electricity” was adopted by the National Assembly on November 6, 2000 and then promulgated by Royal Decree on February 2, 2001. This law covers all activities related to the supply, provision of services and use of electricity, and other associated activities of the power sector, allowing licensing of  isolated and grid-connected mini-grids and distribution systems.  

Institutions, Roles and Responsibilities

There are three main players who have considerable power in the electricity sector in Cambodia: the Ministry of Industry, Mines and Energy (MIME), the Electricity Authority of Cambodia (EAC), and the state owned utility Electricite du Cambodge (EdC).  Electricity was first introduced to Cambodia in 1906 by Compagnie des Eaux et Electricité (CEE), Union d’Electricité d’Indochine (UNEDI) and Compagnie Franco – Khmer d’Electricité (CFKE). CEE was responsible to supply the electricity to Phnom Penh and suburbs, while UNEDI operated throughout country except Battambang province, which was supplied by CFKE.  In 1958, the Government purchased CEE’s and UNEDI’s concession rights to form the Electricité du Cambodge to generate, transmit and distribute electricity for Phnom Penh and provinces throughout the country.  During the long war, EdC’s facilities were destroyed, but it remains the most influential of the three key players in the electricity market.  As a commercial entity, EdC is required to operate in accordance with market demand and seek to earn a profit.  It must prepare, build, own, finance, lease and operate power generation and substations, transmission lines, distribution networks and other infrastructure necessary.  This involves the operation of 24 decentralised grid networks.  Other players in the market include over 300 IPPs, REEs, and other licensees that import electricity from neighbouring countries or own stand-alone diesel generators.  MIME is mainly responsible for the formulation of policies and strategies.  EAC was established by the Electricity Law in 2000 as an autonomous public agency with the purpose of regulating the electricity power services, and was granted the right and obligation to penalize, if necessary, the supplier and consumer of electricity in relation to electricity generation and supply facilities. Amongst other responsibilities, EAC issues five types of license for the supply of electricity (consolidated, generation, distribution, retail and special purpose transmission licenses), approves tariff rates and charges, oversees the implementation procedures and standards, and ensures transparency by facilitating information to the public about its activities.

Interventions

The Government's approach was based upon an intentional lack of restrictions such as exclusive franchises, licensing, and tariff regulation.  When a central utility does not have the incentives, cost structure, or capacity to reach grid extension goals, exclusive or monopoly rights can be counterproductive.   It was recognised that mini-utilities thrive when they are free from onerous licensing and permitting barriers (even where mini-utilities are not blocked by exclusive franchises, they are still often stymied by onerous licensing procedures and conditions). Cambodia adopted a light regulation approach that meant mini-grid enterprises could prosper and grow. Licenses were granted, allowing mini-utilities to borrow from commercial banks.  A regulation framework was introduced to allow off-grid systems to connect to larger utilities, purchase cheaper power from those utilities, and then on-sell that power to their customers at a regulated distribution margin.  As part of the Cambodian government’s policy to expand access to electricity,  mini-grids in the country are eligible to receive a $45/connection output-based subsidy to offset the upfront capital costs - this government policy has successfully attracted businesses to the mini-utilities space.  The Government has also established a Rural Electrification Fund (REF) with the objective to facilitate access to electricity infrastructure and provide a secure, reliable, environmentally safe, and sustainable energy supply of various types, at reasonable and affordable price.  Mini hydro plants (and also solar home systems) are eligible to receive subsidies up to 25% of total investment costs.

Impacts Achieved

After a little more than 15 years of development, mini-utilities serve 28% of the rural population on a commercial basis.  According to the current national Rural Electrification Master Plan (REMP), the total cost to electrify all villages (including private investment and public subsidy) is about US$ 427 million or US$ 490 per household for future connections, with 872,000 households to be involved. A total of 272,000 households will be electrified in the off-grid areas by decentralized mini-grids and solar battery charging by the target year 2020. The gross investment costs will amount to about $147 million. The remaining villages will be connected through grid extension. 

Lessons Learned

The success of mini-utilities in Cambodia is due mainly to a regulatory regime that allows them to exist. This illustrates a regulatory approach  that may be valuable for other governments looking to facilitate the operation of local mini-grids in unserved areas.  One important need for future electricity grid integration is the development of standards, which has been achieved in Cambodia with international donor support (provided by JICA to prepare the General Requirements of Electric Power Technical Standard, GREPTS, which was adopted in 2004).  A key lesson from Cambodia is simply the value of removing restrictions such as exclusive franchises, licensing, and tariff regulation.   Cambodia may be an extreme case, and there is no need to abandon all regulation to get mini-grids working. What is essentially required is to legalize their operations to put them on a sound regulatory footing so that they can do the essentials, such as raising debt.  Most mini-utilities cannot offer to connect customers for little or no up-front payment - they are simply unable to finance such large capital outlays on their own. Some financial support from the government has been needed to attract businesses to the mini-utilities space.  In many countries, regulation has been used to introduce tariff caps intended to counter the natural monopoly of typical grid utilities, and to make electricity affordable for the poor. But often they have the opposite effect by making it unviable for mini-utilities to enter the market. Mini-utilities typically have a higher cost of service than large integrated grids, but where they are used solely for lighting purposes they compete with solar home systems and lanterns.  Regulation can then fail to address the practical needs, restricting rather than facilitating market development, and therefore be unnecessary.  For example, in Cambodia, mini-utilities began and flourished without any tariff regulation (though the need for some structure, as the operation of mini-grids expanded, was ultimately provided from 2000 by EAC).

Effectiveness

The approach adopted by the Cambodian government (enforced to a large extent due to lack of capacity following the civil war) has avoided restricting the growth of the market for mini-grids, which are expected to serve 31% of villages with grid-quality electricity by 2020.  Historically, the average cost of connection to a decentralised mini-grid has been  ~US$540/household, which has been made affordable for end users (though whether this includes the initial system installation cost, or just the incremental cost per connection, is not clear).  The Rural Electrification Fund (with support from the International Development Association and the Global Environment Facility) has helped to reduce the costs to the target customers, and the government subsidy of US$45/household, made available to Rural Electrification Enterprises for an additional 50,000 connections, has stimulated significant growth.  The combination of clear Government targets and limited financial incentives to offset capital costs, has seen the development of an effective commercial mini-grid sector without the need for extensive regulation.

Overview of Other Country Case Studies

Bangladesh, IDCOL Solar Home SystemsBrazil, Luz para Todos (Light for All)NAE Case Study: Cambodia “Light Touch” RegulationCosta Rica, Distribution CooperativesEthiopia, Solar Market DevelopmentKenya, Off-Grid for Vision 2030Mali, Rural Electrification ProgrammeNepal, Rural Energy Development ProgrammePeru, Concession Model for Standalone SystemsPhilippines, Islanded Distribution by CooperativesRwanda, Sector-Wide Approach to PlanningSouth Africa, Integrated National ElectrificationTanzania, Mini-Grids Regulatory FrameworkTunisia, Low Cost Distribution TechnologyVietnam, Rapid Grid ExpansionNAE Case Studies Navigation Table.png]]


References


Authors

Authors: Mary Willcox, Dean Cooper

Acknowledgements

The Review was prepared by Mary Willcox and Dean Cooper of Practical Action Consulting working with Hadley Taylor, Silvia Cabriolu-Poddu and Christina Stuart of the EU Energy Initiative Partnership Dialogue Facility (EUEIPDF) and Michael Koeberlein and Caspar Priesemann of the Energising Development Programme (EnDev). It is based on a literature review, stakeholder consultations. The categorization framework in the review tool is based on the EUEI/PDF / Practical Action publication "Building Energy Access Markets - A Value Chain Analysis of Key Energy Market Systems".

A wider range of stakeholders were consulted during its preparation and we would particularly like to thank the following for their valuable contributions and insights: - Jeff Felten, AfDB - Marcus Wiemann and other members, ARE - Guilherme Collares Pereira, EdP - David Otieno Ochieng, EUEI-PDF - Silvia Luisa Escudero Santos Ascarza, EUEI-PDF - Nico Peterschmidt, Inensus - John Tkacik, REEEP - Khorommbi Bongwe, South Africa: Department of Energy - Rashid Ali Abdallah, African Union Commission - Nicola Bugatti, ECREEE - Getahun Moges Kifle, Ethiopian Energy Authority - Mario Merchan Andres, EUEI-PDF - Tatjana Walter-Breidenstein, EUEI-PDF - Rebecca Symington, Mlinda Foundation - Marcel Raats, RVO.NL - Nico Tyabji, Sunfunder -


NAE Overview Page

Any feedback would be very welcome. If you have any comments or enquires please contact: mary.willcox@practicalaction.org.uk, benjamin.attigah@euei-pdf.org, or caspar.priesemann@giz.de.

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