National Approaches to Electrification – Delivery Model

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Delivery Model: The (market) chain of organisations through which electricity is delivered to users

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Public

Definition

Delivery of electricity access by an entity or entities all of which are publically owned and managed, using purely public finance. In this delivery model all of the organisations engaged in provision of electricity access (whether through supply of electricity itself or provision of electricity systems), as part of the National Electrification Approach being considered, are state-owned. This implies that all the actors along the market chain (Project Development, Manufacture/Generation, Distribution and Retail) are publically owned. These may include electricity utilities, publically-owned generation, transmission and distribution companies, municipalities, or rural energy agencies.

Interactions with other NAE Categories

	Technology	National grid systems have most often been established under a public delivery model either through a single public electricity company owning and managing the entire system or through separate public generation, transmission and distribution companies. Grid-connected mini-grids and distribution systems may also be publically owned, for instance by a local municipality. Where isolated mini-grids or standalone systems are delivered through a public model this is generally by an electricity utility or distribution company which has adopted an integrated approach with electricity being provided using a combination of grid, mini-grid and standalone systems.
	Legal Basis	Regulation of public delivery models is often implicit, with oversight and control being through organisational hierarchy rather than any explicit regulatory framework. For instance a national utility company’s monopoly (concession) over generation and/or sale of electricity may be established through the legislation under which it is created rather than through any separate framework. However, though an explicit regulatory framework may not be needed to give private investors confidence, such a framework is nevertheless regarded as best practice to achieve transparency and provide a barrier to political interference.
	Price/Tariff Regulation	Where electricity is delivered through public models, with no need to attract private investment, there is also a temptation to manage prices by means of the organisational hierarchy. However, without independent regulation, there is a risk that political pressure will result in prices being depressed below cost-recovery levels leading to insolvency of the electricity providers and deterioration of the electricity provision.
	Finance	By definition, a public delivery model will use public finance– by publically-owned utility companies or national or local government, potentially supported by loans and grants from international agencies - (since any private finance would cause the delivery model to be categorized as a public-private partnership). In addition public delivery models will draw on finance from users, through standalone system purchases, connection charges and ongoing charges, and for multi-user systems (grids and mini-grids) there is likely to be some element of cross-subsidy between users.
	Non-Financial Interventions	National energy planning is key to establishing the optimum mix of technologies to meet electrification needs across the country, regardless of the delivery model employed. Institutional restructuring and capacity building or technical assistance may be needed where the key actors involved in public delivery models lack capacity is aspects of electrification. Technology development/adoption and adoption of appropriate technical standards, user awareness raising and demand promotion may be needed to increase revenues and make electricity access economically sustainable, regardless of the delivery model chosen.

Advantages and Disadvantages

A public delivery model has the advantage of making use of existing institutions. Where these organisations have strong capabilities and are efficient, a public delivery model may allow strongly focused and effective delivery of electrification and good coordination of grid, mini-grid and stand-alone solutions. However public organisations are often monolithic and slow moving. They may be more focused on managing existing assets than serving new consumers, particularly in remote rural areas, and they may lack the capabilities needed to deliver new forms of electricity access. They are also vulnerable to political pressure and interference, which can hamper electrification efforts and result in poor allocation of resources. Following a private sector or private-public partnership model can allow private sector finance and skills to be brought to bear and may achieve greater flexibility, speed and efficiency.

Further Information and Guidance

Barnes, D. (2007). The Challenge of Rural Electrification: Strategies for Developing Countries. Book Chapter https://books.google.co.uk/books?id=iOBi17Pr3fIC&printsec=frontcover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false IEA, (2010), Comparative Study on Rural Electrification Policies in Emerging Economies https://www.iea.org/publications/freepublications/publication/rural_elect.pdf Vietnam. The World Bank, (2011). State and People, Central and Local, Working Together: The Vietnam Rural Electrification Experience. Washington. http://documents.worldbank.org/curated/en/601001468027856008/Vietnam-State-and-people-central-and-local-working-together-the-rural-electrification-experience

Relevant Case Studies

Brazil, Luz para Todos (Light for All) South Africa, Integrated National Electrification Tunisia, Low Cost Distribution Technology Vietnam, Rapid Grid Expansion

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Private (Non-Government)

Definition

Delivery of electricity access by an entity or entities none of which are owned and managed by the state, using purely private finance. In this model all of the organisations engaged in provision of electricity access (whether through supply of electricity itself or provision of electricity systems), as part of the National Electrification Approach being considered, are non-state-owned. This implies that all the actors along the market chain1 (Project Development, Manufacture/Generation, Distribution and Retail) are non-state entities such as private companies, cooperatives, social enterprises, community organisations or NGOs (all characterised for this purpose as “private” organisations).

Interactions with other NAE Categories

	Technology	Few, if any, national grid systems have been established through a private delivery model (though in many countries privatisation has been used to transfer them into private ownership and bring in private investment). Grid-connected mini-grids and distribution systems have frequently been developed by private (non-state-owned) organisations. Where the grid system is also privately-owned, this constitutes a private model. (However, if the grid system is publically owned, and the mini-grid or distribution system uses electricity from the grid system, or the development draws on public grants, subsidies, loans, tax exemptions or guarantees, it constitutes a public-private partnership). The most frequently used models for delivery of standalone systems are private, through the involvement of state-organisations along the market chain, or use of funding from grants or subsidies provided by the state, donors or international agencies, may result in private-public partnerships.
	Legal Basis	A private delivery model calls for an explicit legal framework for any form of electrification which involves significant long-term capital investment (grid, mini-grids and potentially standalone systems which are charged for on a pay-as-you-go basis) in order to attract private finance and allow for price regulation to protect users. A concession, which offers protection from competition, will provide the greatest attraction for private financiers. Where no long-term capital investment is involved, as with standalone systems sold directly to users, it’s generally considered that no legal control (beyond that for any business) is necessary.
	Price/Tariff Regulation	Where electricity is delivered by the private sector, using purely private finance, in a competitive market with no legal or effective monopoly (eg where several solar lanterns providers are operating) price regulation may be regarded as unnecessary. However, where any form of concession has been granted (or exists in practice), price regulation would be expected to protect users. On the other side, where significant capital investment is involved private financiers are likely to require a transparent framework for price/tariff regulation, to reduce the risk of price controls being introduced in the future at below cost-recovery levels and preventing full recovery of and return on investment.
	Finance	As discussed above a private delivery model must be purely privately financed (since inclusion of any public finance would cause the delivery model to be categorized as a public-private partnership). Ultimately private delivery models will rely on connection and ongoing charges, and standalone system purchases from users. For multi-user systems (grids and mini-grids) there is also likely to be some element of cross-subsidy between users.
	Non-Financial Interventions	National energy planning is key to establishing the optimum mix of technologies to meet electrification needs across the country, regardless of the delivery model employed. Institutional restructuring and capacity building or technical assistance may be needed where the key actors lack the capacity to undertake regulatory reform in order to establish the legal and regulatory framework for private electrification, or to set and implement technical and quality standards (needed where the private sector is delivering access through mini-grids or distribution systems to ensure safety and compatibility between systems, and to support user confidence). Awareness raising amongst users and other potential market actors and service providers, as well as training (capacity building) to develop the skilled workforce needed by new energy access businesses are likely to be particularly relevant under a private delivery model, and demand promotion may be needed to increase revenues and make electricity access economically sustainable. Private delivery models are often a means of introducing new technologies, with private sector players bringing in technologies which they believe will have advantages over existing options which will allow them to grow their businesses. (Such new technology introduction, however, brings risks, and the private sector will expect to reap additional returns to balance these risks).

Advantages and Disadvantages

The private sector is widely seen as being more efficient, innovative flexible and nimble that the public sector and it is these virtues that it brings to energy access provision. Use of a private delivery model can be a way of bringing private sector skills and finance (both national and international), and the benefits of competition into the energy sector. Where public institutions are weak and ineffective, private delivery models may seem attractive, but it must be recognised that successful private delivery relies (particularly for grids and mini-grids) on effective public management including strong regulatory frameworks and this calls for capabilities within public institutions which they may lack. There are also elements needed for the private sector to deliver, such as workforce skills and user awareness, which individual businesses may be reluctant to provide, because of the costs involved and because in a competitive market they will be unsure that they (rather than competitors) will capture the benefits and secure a return on their investment. In addition, where modern energy access is not affordable on a purely private financed basis or public financial input is needed to support the costs of early market development, a public-private partnership delivery model will be needed. Grid-connected mini-grids can, in theory, provide any level of electricity supply, but in most cases if the investment is made for grid connection and associated standards are met, they  provide a grid-equivalent service, meeting all household, commercial, industrial and community requirements (Tier 5). (If the grid system itself is over-stretched with inadequate generation; or insufficiently robust or poorly maintained transmission and distribution systems reliability and quality of supply may deteriorate so that while users have a physical connection, they may not in fact have reliable access to electricity (bringing the supply Tier 3 or lower). To the extent that a grid-connected mini-grid draws on electricity from the grid its construction should be coupled with development of additional centralized generation capacity to support the resulting additional demand.

Further Information and Guidance

IRENA (2016), Policies and regulations to support renewable energy mini-grid development through private sector involvement https://policy.practicalaction.org/policy-themes/energy/poor-peoples-energy-outlook/poor-people-s-energy-outlook-2016 Practical Action, ODI, Solar Aid, GOGLA. (2016). Accelerating Access to Electricity in Africa with Off-grid Solar https://policy.practicalaction.org/policy-themes/energy/off-grid-solar UNEP & GOGLA, (2015), Developing Effective Off-Grid Lighting Policy https://www.gogla.org/sites/www.gogla.org/files/recource_docs/developing-effective-off-grid-lighting-policy.pdf WBCSD, Business Case for Low-Carbon Microgrids (2016) 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 World Resources Institute (2015),Clean Energy Access in Developing Countries: Perspectives on Policy and Regulation, Issue Brief 2  https://www.irena.org/DocumentDownloads/Publications/Evaluating_policies_in_support_of_the_ deployment_of_renewable_power.pdf

Relevant Case Studies

None of the examples examined have had a purely private sector delivery models (ie no public involvement in either ownership or funding).

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Public-Private Partnership

Definition

Delivery of electricity access by an entity which is part publically and part privately owned or by a mix of publically and privately owned entities or using a combination of public and private finance This includes cases where: a joint venture has been created between a state-owned organisation and a private company to provide electricity one or more state-owned organisation fill some of the functions along the market chain1, while others are filled by private businesses electricity provision is undertaken by private businesses with public financial support (subsidies, grants, loans etc)

Interactions with other NAE Categories

	Technology	Public-private models for grid systems might include: Publically owned generation and transmission combined with privately owned distribution; Independent Power Producers (IPPs) connected to a publically owned transmission/distribution system; A privately owned grid system using grants from public sources to connect new users. For grid connected mini-grids and distribution systems: Mini-grids owned by a private developer connected to the (publically-owned) main grid, and thereby drawing on publically owned generation to meet demand; A private company, or public-private joint venture, taking on operation of a section of the publically-owned grid distribution system; Public grants or subsidies supporting development of a privately-owned mini-grid or distribution system. For isolated mini-grids: Mini-grids developed on a Build-Own-Operate-Transfer basis (initially owned and operated by a private developer, but transferred to public ownership at the end of a concession period); Mini-grids built and operated by a public-private joint venture; Public grants or subsidies supporting development of a privately-owned mini-grid. Use of public finance (grants, subsidies and loans) to enhance affordability and support market growth often results in a public-private model for standalone systems, even when there is a purely private-sector chain of manufacturers, importers, distributors and retailers. There could also be benefits in some circumstances from government energy agencies becoming directly involved in the standalone system market, by forming a joint entity to supply systems or by taking on one of the roles along the value chain (eg providing a distribution service for all system providers), as a means of supporting market development.
	Legal Basis	Because a public-private model involves private ownership and investment, an explicit legal framework will be required for any form of electrification which involves significant long-term capital investment in order to attract private finance and allow for price regulation to protect users. A concession, which offers protection from competition, will provide the greatest attraction for private financiers. Where no long-term capital investment is involved, as with standalone systems sold directly to users, no legal control (beyond that for any business) may be necessary – however if there is partial public sector ownership, a transparent legal framework may be required to convince private market participants that they are not facing unfair competition, and also to ensure that any public finance is not being misused.
	Price/Tariff Regulation	Where significant capital investment is involved, a transparent framework for price/tariff regulation is likely to be required to attract the private element into any public-private partnership. Tariff regulation will also protect users and provide a means of ensuring that public finance is not being misused or exploited by the private sector. It may also demonstrate to private market participants that they are not facing unfair competition from partially publically-owned market participants.
	Finance	All public-private partnerships will involve a combination of private and public finance. Private finance will come through ownership and investment in, and loans to electricity providers. Public finance may come through these routes, but may also be through various forms of grant, subsidy, tax exemption or guarantee. Ultimately public-private models, like other forms of electricity provision, will rely on connection and ongoing charges, and standalone system purchases from users. For multi-user systems (grids and mini-grids) there is also likely to be some element of cross-subsidy between users.
	Non-Financial Interventions	National energy planning is key to establishing the optimum mix of technologies to meet electrification needs across the country, regardless of the delivery model employed. Institutional restructuring may be needed to establish public-private partnerships and capacity building or technical assistance may be required if the key actors lack the capacity to undertake regulatory reform or design arrangements for public financial support.  Awareness raising amongst users and other potential market actors and service providers, as well as training (capacity building) to develop the skilled workforce needed by new energy access businesses can be beneficial alongside financial forms of public support. Public-private partnership may also provide the means to bring in new technology, with the private sector providing the technology know-how while the public sector bears the risk inherent in new technology which private investors may be reluctant to take on.

Advantages and Disadvantages (Including Level of Electricity Provided)

Public-Private partnerships offer the potential to combine the benefits of both models, with public security being combined with private efficiency, innovation and flexibility. Bringing in private finance can extend the capacity for electricity provision beyond that which the public sector alone can offer, while public financial support can be used to attract private finance and make electricity affordable for users.  Combining public and private inputs is not, however, simple. Significant expertise is required to ensure that private investment is attracted while making optimum use of public resources. Moreover, the appropriate form of public-private partnership will change as markets develop and levels of electricity access increase – and this must be recognised while at the same time creating regimes which can give the private sector the confidence in the future they require to invest.

Further Information and Guidance

Clean Energy Solutions Centre & iied. (2015). Policies to Spur Energy Access https://cleanenergysolutions.org/resources/policies-spur-energy-access

Relevant Case Studies

Bangladesh, IDCOL Solar Home Systems Brazil, Luz para Todos (Light for All) Cambodia “Light Touch” Regulation Costa Rica, Distribution Cooperatives Ethiopia, Solar Market Development Kenya, Off-Grid for Vision 2030 Mali, Rural Electrification Programme Nepal, Rural Energy Development Programme Peru, Concession Model for Standalone Systems Philippines, Islanded Distribution by Cooperatives Rwanda, Sector-Wide Approach to Planning South Africa, Integrated National Electrification Tanzania, Mini-Grids Regulatory Framework Vietnam, Rapid Grid Expansion

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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 -

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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.

Download the Tool as a Power Point: https://energypedia.info/images/a/aa/National_Approaches_to_Electrification_-_Review_of_Options.pptx

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