Difference between revisions of "National Approaches to Electrification – Non-Financial Interventions"
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Revision as of 08:34, 10 July 2018
![National Approaches to Electrification – Non-Financial Interventions Page.png]]](/images/thumb/8/88/National_Approaches_to_Electrification_%E2%80%93_Non-Financial_Interventions_Page.png/800px-National_Approaches_to_Electrification_%E2%80%93_Non-Financial_Interventions_Page.png) |
Non-Financial Interventions: Actions taken to support or facilitate electricity access
Interventions should be regarded as part of a National Electrification Approache only if they are integral to governement electrification policy/strategy
Direct Energy Access Provision
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Definition |
Direct action by an implementing authority (such as a Rural Energy Agency or national utility) to provide or take part in the provision of electricity directly, rather than by funding, incentivizing or facilitating provision by others. This may include providing:
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Internactions wiht other NAE Categories
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Technology |
Grid extension is often directly provided, but direct provision may also be used for mini-grids and standalone systems. | |
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Delivery Model
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Direct provision sits naturally with a public delivery model where all the elements along the supply chain are undertaken by public entities. Where the public sector wishes to take on only some roles along the chain, a public-private partnership may be more appropriate. Direct provision through a purely private model is difficult to envisage. | |
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Legual Basis |
Direct provision may be on a national concession monopoly basis, with oversight and control being through the organisational hierarchy (though a transparent regulatory system would still be best practice). Where direct provision is applied to only one part of electricity access and or to only some elements of the supply chain, it is important that the regulatory basis is clear so that other market participants can understand it and so that any potential threat to them is reduced. | |
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Price/Tariff Regulation | ||
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Finance
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Private finance is unlikely to be used to fund direct provision, though it will probably be used in the private elements of a public-private partnership arrangement including direct provision (and could be leveraged by the direct provision elements). Some form of public funding is very likely to be involved in direct provision, though since this may be within the public sector it may be implicit rather than through explicit grants or subsidies. Direct provision may also draw on cross-subsidies and hence on charges on existing users to subsidise provision to new users. | |
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Other Forms of Non-Financial Interventions
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National energy planning will establish the optimum mix of technologies to meet electrification needs across the country, but not how they are best provided. Direct provision will often take place within existing structures, however Institutional restructuring may be needed to provide a focus for provision – eg by a Rural Energy Agency – and capacity building or technical assistance for this new organisation may be merited. Direct provision may also be accompanied by measures such as demand promotion and technology adoption. |
Advantages and Disadvantages
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Direct provision will generally use existing institutions, capabilities and systems and where these are strong may bring advantages. By drawing on these strengths it can bring economies of scale (eg through bulk purchasing). However, this will often be accompanied by entrenched ways of working and be inflexible and slow moving. Direct provision also has the potential to bring in other participants (for instance by offering standalone system providers a simple way to distribute their products), but carries the risk of distorting and crowding others out of the energy access provision. |
Further Information and Guidance
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Relevante Case Studies
Institutional Restructuring
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Definition |
Reorganising and reassigning responsibilities between government departments, agencies, utilities and other organisations charged with managing the sector and delivering electricity access. In many countries, the national electricity utility has historically been the sole provider of electricity and responsible for all electrification efforts. The motivation for institutional reform is generally some combination of poor performance or inefficiency of existing institutions (often the national utility) and a wish to accelerate extension of electricity access, to introduce new forms of electricity provision, to bring in new (often private) funding and investment or to create greater transparency and accountability. |
Internactions wiht other NAE Categories
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Technology
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Institutional reform will have an impact on all approaches to electrification and the associated technology categories. For grid extension, existing institutions have extensive experience of practices that may no longer be most appropriate for electrification in more areas. New practices may be required to increase levels of efficiency in order to make further grid extension a viable option, new expertise and knowledge may be needed to support adoption of new forms of electricity provision, and cultural change may be needed to achieve increased focus on supplying new users alongside serving existing customers. mini-grids, whether isolated or integrated with the grid, require different support structures to be effective, reliable and commercially viable. Stand-alone systems again offer a different approach to the aims of electrification, with the satisfaction of basic needs being the principle driver, rather than a full power service. This too requires a different institutional perspective, skills and understanding that can only be delivered through the reform of existing support structures. | |
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Delivery Models
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The institutions originally established to deal with power generation and supply were almost exclusively public sector, centred upon the national electricity utility. With the increasing cost of reaching more remote areas, the need for upfront investment has become a serious constraint to network expansion. Rural electrification also raises new challenges regarding the need for more intensive community interaction and closer management of the local operations. Consequently, the resources that can more readily be offered by the private sector – including the scale of investment and commercial management in order to make sufficient returns – are increasingly required. There is a growing need for private models and public-private-partnerships, which face the barrier of public institutions that have experience of a single method of providing access to electricity. The reform of these institutions, taking account of private sector interests, can thereby create opportunities for partnerships that will bring mutual benefits to all involved. | |
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Legual Basis
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Establishment of either or concessions or licenses for electricity provider implies a wish to bring in private or public-private electricity provision. Setting up these arrangements will require competent institutions with responsibility for managing them, and institutional restructuring is a likely response to this need and a first step in establishing new legal arrangements for electricity provision. | |
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Price/Tariff Regulation
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Similarly any form of price/tariff regulation requires a regulator. A regulator independent from | |
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Finance
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An institutional structure convincing to private sector businesses and investors is key to attracting private finance. It is also through this institutional structure that the interests of users are protected and the portion of funding provided by users set. The institutional structure also governs how any grant/subsidy, cross-subsidy, tax exemptions and guarantee arrangements are set up and implemented. | |
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Other Forms of Non-Financial Interventions
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The institutions charged with managing the sector and delivering electricity access will also be responsible for designing and managing non-financial interventions. One key element of institutional change will be to match the capabilities of staff to new requirements. Training to familiarise staff with new approaches, and to transfer the new skills required to provide the associated support will be an important requirement for any lasting reform process (and, if fulfilled adequately, will also incur a significant cost due to the large size of the institutions involved and the broad range of their activities – this should be budgeted in advance to set clear expectations). A first step in this process will be to educate staff regarding the need for reform, to convince them of the benefits, and so secure ownership and commitment to the change process. In the case that existing staff are unable or unwilling to adapt their approach, or when new skills are required to support modern demands, then the recruitment of new staff should be considered to establish the target capacity). Having raised the awareness and understanding of staff, they will become more receptive to the transfer of skills, equipping the institution with sufficient capacity to move forward, with minimum disruption. |
Advantages and Disadvantages
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The main benefit from institutional reform is to improve the operation and therefore the efficiency of current organisations involved with the expansion of electrification and to align them with new models and approaches to electrification. The electricity industry has usually been centred upon a national power utility, whose focus has been exclusively on grid-extension. With the increasing cost of electrification to remote areas, alternatives to the central grid have become more relevant, but the utility is often not structured in a way that can consider and react to these alternatives. The reform of the utility, and related state structures, can increase the ability of the sector to consider and react more positively to new electrification approaches. An immediate disadvantage from such reform is the impact of change. Such change is often disruptive and will initially require additional resources to introduce unfamiliar systems and there may be significant costs associated with new infrastructure and systems. There will also be the need to support capacity building for operators who have been involved with previous systems, and possibly the introduction of new staff to enable sustainable reform processes. Given these costs it is important to be sure that institutional restructuring is necessary and not just a distraction from the real challenges of extending electrification. However it is usually a one-off, upfront cost to put changes into effect; this can then be compensated over time from the improved efficiencies and more cost-effective output. |
Further Information and Guidance
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Relevante Case Studies
Regulatory Reform
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Definition |
Reform of laws and regulations governing the generation, distribution and sale of electricity, and of related processes and procedures. Because electricity is such an essential service, most countries have some regulation of who may provide and sell electricity, and on what terms, to protect both providers and users. Often these have in the past been based on the assumption that electricity will be provided through a national grid system. As new options for electricity provision emerge, regulatory reform may be needed to enable their implementation, to create incentives for private and public sector power utilities to provide electricity, both through the extension of electricity networks and decentralized power provision, and to protect users. |
Internactions wiht other NAE Categories
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Technology
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Regulation of the grid system is generally well established. Reform may be required in order to allow for privatisation and introduction of private finance, creation of grid connected distribution systems or introduction of grid connected mini-grids or Independent Power Plants. Regulatory reform may also be needed to allow and incentivize isolated mini-grids. Standalone systems have in the past generally been unregulated, but as these become a more significant element in electricity provision, reform may be undertaken to bring them under regulatory control and to create incentives for their supply. In particular it may be necessary in order to allow pay-as-you-go arrangements to be established. | |
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Delivery Model
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Within a public delivery model, regulatory reform will generally be a matter of improving efficiency and transparency. Reform is likely, however, be fundamental to allowing private and public-private partnership models for electricity delivery. The regulatory structure which is the outcome of this reform will form the basis of the development of these models and how they deliver electricity access. | |
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Legual Basis
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The current regulatory framework must be the stating point for any reform. In many cases this will be a monopoly (nation-wide concession) for the national utility. The fundamental requirement to allow private sector participation is to make it legal. This may achieved simply by change in the law allowing all to generate and sell electricity, but authorities generally wish to maintain some level of oversight, over larger mini-grids at least, and so require their operators to be licensed. Alternatively, concession areas may be established, creating local monopolies for which electricity businesses can compete, with the terms of the concession agreement setting out the concessionaires rights and obligations. Standalone system providers are not usually covered by any utility monopoly (since it is the means of accessing electricity rather than electricity itself which they are selling), but as they become a more significant element in electricity provision, and particularly to allow pay-as-you-go arrangements, their regulation may be appropriate. Regulatory reform will be required to introduce such regulatory approaches, or to transition between one approach and another according to experience under local conditions. | |
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Price/Tariff Regulation
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Regulatory reform is also central to establishing regulation of prices and tariffs. Appropriate price/tariff regulation is important to to protect users and incentivize suppliers. To see further information on different forms of price/tariff regulation, please go to the Uniform Price/Tariff and Individual Price/Tariff category descriptions. | |
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Finance
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The most usual motives for regulatory reform are to allow and encourage private, commercial, investment in electricity provision and to protect users and limit the requirement for user finance through price/tariff regulation. Reform to financial and tax regulation may also be needed to allow pay-as-you-go arrangements and to establish any tax exemptions. While grants, subsidies and guarantees are less directly linked to regulatory reform, it is important that they be aligned with the regulatory framework established. | |
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Other Forms of Non-Financial Interventions
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Institutional Restructuring frequently accompanies Regulatory Reform, particularly where |
Advantages and Disadvantages
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Regulatory reform is an essential pre-requisite to many National Electrification Approaches. Its main disadvantages are the costs and resources used in reform, and the risk that the regulatory system designed may not, in practice, support the intended objectives and that over-regulation may hamper rather than assist improvements in electricity access. |
Further Information and Guidance
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Relevante Case Studies
Policy & Target Setting
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Definition |
Establishment of Government policy for the expansion of electrification and definition of targets for achievement of electricity access provision over a defined timeframe. There is widespread experience across the world of the positive impact of relevant targets within a broader policy for access to electricity. Existence of a clear policy and targets provides a foundation for implementation, offering installers and financiers clear guidance on the government’s commitment to electrification and regarding the types of electricity provision required; this brings certainty to the market and hence encourages sustainable investment in this area. While policy sets out the overall direction of the national approach to electrification, targets provide clear and quantified objectives. Targets may be set in terms of capacity/volume of electricity supplied or of numbers of household, businesses and community facilities provided with electricity access and levels of electricity access provided. They may be blind to the means used for provision or relate to specific technologies or to renewable versus fossil-fuelled electricity. Any targets should include clear timescales to allow progress to be monitored. Establishing targets in law is an important step in increasing their credibility and longevity. While most targets currently adopted around the world lack clear enforcement mechanisms or penalties, a number of countries are setting legally-binding targets. Making targets binding in law helps reassure investors in the expansion of electrification that a local market will continue to exist in the future. Furthermore, legally binding targets are harder to repeal and therefore may be less vulnerable to changes in the political climate. Overall, the track record for jurisdictions with aspirational targets is varied. In contrast, the track record for jurisdictions with binding targets is considerably stronger. |
Internactions wiht other NAE Categories
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Technology
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In the past targets have been set mainly in terms of generating capacity (MW), output (MWh) and numbers of (grid) connections. This approach is becoming increasingly outdated in a changing electricity landscape as it ignores off-grid forms of access and focusses on supply rather than the applications supported by electricity, with the ongoing development of low-energy appliances. Instead it is suggested that, in line with the SE4All Multi-Tier Tracking Framework, targets should be formulated in terms of numbers gaining electricity access and levels of access achieved. Governments increasingly recognise the benefits of adopting a portfolio approach to any renewable energy deployment, including the use of local renewable resources for electrification. Targets that are exclusive to selected technologies can be introduced to support their specific deployment, in particular when they are most suitable in terms of resource availability (e.g. solar electricity generation targets in Dubai). Such targets can also give investors confidence and catalyse development of the market for these selected technologies. In addition, technology-specific targets can support the diversification of the energy mix to increase energy security. As a result, technology-specific targets have significantly increased in recent years. By encouraging the simultaneous development of a range of different electrification options, policy makers are enabling more diversified electricity supply sectors to emerge and to grow. | |
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Delivery Model
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Under a public delivery model, government policy and targets effectively act as instructions to those managing electricity provision. Under private or public-private partnerships targets may be made obligatory through concession and licensing arrangements, but care should be taken in establishing onerous business-specific obligatory targets since these may discourage investment, even while the government commitment to electrification embodied in policy and targets can encourage it. | |
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Legual Basis |
Any targets established by Government authorities should be in line with other regulatory measures. Any provisions made to grant licences or concessions, or any framework in place for electrification through a monopoly provider, must be accounted for in order for electrification targets to be realistic within the constraints of agreements already reached. Licence holders and concessionaires often have clear limits specified for the number of increased connections that they are able to deliver. Any policy or targets must be aligned with such agreements, and include clear justification (including the source of any additional installation capacity) if targets are set above the limits already in place for suppliers engaged through existing regulation. | |
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Price/Tariff Regulation | ||
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Finance
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One of the main purposes for setting targets is to direct financial resources. At the same time, one of the factors to take into account when setting targets is the availability of finance – from the public purse, from users’ willingness-to-pay and from private investment. In order to have sufficient confidence for investment in any market, financiers will usually require some clear policy commitment. The definition of targets related to such electrification policy has great value since such quantification provides a much clearer definition of the size of the market and thereby the potential returns for investors. This level of clarity, with policy commitments backed up by target levels of electricity access, means greater certainty and therefore increased willingness to invest. | |
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Other Forms of Non-Financial Interventions
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Any policy that includes a framework for expansion of electrification by specific means (whether grid, mini-grid or stand-alone systems) will provide a foundation for the increased involvement of installers and financiers. Potential end-users will also become aware of such commitments and policy and targets will thereby increase awareness of the opportunity for electrification. Targets and policy for greater access to electricity thus feed directly into provision of market information for businesses, awareness raising and demand promotion. Government policy also forms the starting point for any direct electricity provision and for institutional restructuring and regulatory reform through which the policy will be delivered. Technical assistance may be needed to support policy and target setting. |
Advantages and Disadvantages
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Targets can have a number of positive functions at different stages of the policy-making process (i.e. formulation, implementation, and monitoring and evaluation). They serve an important guiding and knowledge function at the policy formulation stage, where they can bring consistency across different policy spheres and reveal data requirements and discrepancies. They can also enhance the transparency of the policy-making process by providing a common information base to all stakeholders, thereby fostering public support. At the policy implementation stage, targets signal political commitment, indicate long-term investment and innovation trends, improve coordination and motivate stakeholders to take action. At the monitoring and evaluation stage, targets can help measure the effectiveness of various policies and measures, and provide an opportunity for review, adaptation and continuous improvement. One potential disadvantage is the cost in terms of staff time from the institution responsible for policy and target setting. This relates initially to determining an effective target level, which requires research into the costs and benefits of expanded electricity supplies as well as clear understanding of the local issues that will determine user demand, ownership and likely take-up. But also, having established the desired level for target-setting, the type of approach (from voluntary commitments to legal obligations) must be determined according to relevant policy frameworks. This may require further policy preparation or adaption and hence additional institutional resources. Finally, the enforcement of any targets will add to the capacity needs and may require the definition of a new function within an existing authority, or the establishment of a new body to perform this role. Whichever approach is adopted, there is a substantial capacity requirement. |
Further Information and Guidance
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Relevante Case Studies
Quality & Technical Standards
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Definition: |
Rules or guidelines for suppliers and installers (of products and services related to electrification) that ensure safety, compatibility and that performance meets user expectations. Technical standards apply to the performance of equipment installed, while quality standards also relate to the overall customer service experience. A common cause of the failure of rural electrification initiatives is sub-standard quality, whether of system components, project design or the management of installation. The rapid influx of low cost, sub-standard components is a major problem in many markets in developing countries, where lower quality rural electrification projects lead to a wide range of related concerns. These may include reduced system output, less reliable operation, greater need for maintenance and replacement parts, higher life-time system costs (which require higher prices or tariffs), and lower overall customer satisfaction. Without such standards user confidence may be eroded, with users being reluctant to purchase products or services when they are unsure of what performance they will provide. The greatest challenge for the relevant authorities is not the preparation or even the adoption of standards by the related industry, but rather their enforcement. In broad terms, there are three main approaches to the enforcement of standards for electrification expansion, namely 1) permitting and certifying, 2) targeted inspections, and 3) sanctions and penalties. A combination of these approaches, based upon the local systems, culture and experience, will usually be required to ensure compliance. |
Internactions wiht other NAE Categories
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Technology
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For all forms of electricity, the first requirement is safety. For grid systems, and for any grid-connected distribution systems or mini-grids, this is followed closely by technical compatibility – a grid system can only operate if all parts of it are compatible with each other. Most grid systems are designed to give a high level of performance, but sadly many in developing countries are unreliable and provide poor quality electricity, with variations in voltage and frequency leading to damage to users’ equipment. Key questions for isolated mini-grids are whether they aim to provide a grid-equivalent electricity supply, or a lower level of service (eg to power lighting and a small number of low-powered appliances per user), and whether they should be technically compatible with the grid system (facilitating subsequent grid-connection). For standalone systems, standards relate to the level of electricity provided and also, particularly for solar-based systems, to duration (hours/day) and life (especially battery life). | |
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Delivery Models
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Within a public delivery model, particularly where there is a single national utility, standards may be set relatively informally and be treated as internal documents. One of the challenges of bringing in other, private and public-private providers is the need to formalise and make widely available these standards. | |
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Legual Basis |
Technical and Quality Standards may be imposed and enforced through the conditions set for concessions and licenses. Making standards part of regulation is the strictest imposition. In an unregulated context, general legislation must be used, or voluntary standards established through industry associations may be more appropriate. The cost implications of standards should be recognised when prices or tariffs are being set – and price/tariff regulation can be one mechanism for enforcement of standards, with discounts being required if agreed quality standards are nor achieved. | |
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Price/Tariff Regulation | ||
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Finance
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Standards have direct impact on costs, for instance allowing low-cost distribution systems or service drops can reduce the cost of grid extension and mini-grids, and this should be borne in mind when they are being set. At the same time standards can make users more willing to pay charges as they have greater confidence in receiving what they are paying for, and this in turn will strengthen private investors willingness to provide finance. If donor or government funds are involved (eg as grants, subsidies or tax exemptions), then quality standards can be made a condition for the disbursement of funds. | |
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Other Forms of Non-Financial Interventions
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Regulatory reform can provide a practical mechanism for introducing appropriate quality/technical standards. Institutional reform and capacity building (including setting up test facilities and training standards officers) may well be needed to support establishment and enforcement of new standards and well-targeted technical assistance which draws on experience and lessons learned elsewhere may help with this process. Raising users’ awareness of standards is a further critical step in ensuring that standards are applied in practice and don’t just exist on paper. The use of appropriate new technology for remote electrification applications will be dependent upon technical standards. On the one hand out-dated or inappropriate standards may exclude adoption of new technologies which could provide electricity at lower cost. On the other, a lack of relevant standards may mean that market forces drive the implementation of the lowest cost versions of available technologies which, almost invariably, will be of lower quality than required to meet customer needs. |
Advantages and Disadvantages
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The great benefit of introducing quality/technical standards for electrification expansion is to ensure safety and that users receive services and systems that provide electricity at the expected level, consistency and duration. While capital costs may be higher, maintenance and replacement costs should be reduced. It will also enhance user confidence in the remote electrification services provided, and hence increase demand and so support investment and creation of a market that will become sustainable over a shorter space of time. The reduced rate of disposal of redundant systems also brings environmental benefits from a lower negative impact of waste goods and materials. The counter-argument is that standards serve to exclude lower-cost products and that users should be given the choice – but this relies on a high level of user awareness and understanding of technical issues, and ability to value quality differences, which can only be expected in a mature and sophisticated market. On a more practical level, it is the cost and expertise needed to establish standards and the resources and expenditure to enforce them which pose the most significant barrier to their adoption and effective implementation. |
Further Information and Guidance
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Relevante Case Studies
Technical Assistance
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Definition: |
Advice and practical support on any aspect of electrification provided by external experts. Technical assistance spans all aspects of electricity access provision, and may be used to support policy makers and regulators; those designing and implementing intervention programmes; and electricity access providers. The forms of technical assistance in greatest demand are usually advice on regulation and procurement of electricity provision, technical and engineering support; business and financial advice; legal and compliance advice; and market scoping, development and community engagement. Developers have indicated that such assistance can have great value by helping them to take projects through their development life cycle to reach financial closure. |
Internactions wiht other NAE Categories
The nature of technical assistance means that it may be used to provide support in any area of the process to bring new power supplies to unserved communities – consequently it may interact with almost all of the other NEA categories. Thus it may be used to support provision based on any technology and using any delivery model and to assist with design and implementation of legal and regulatory structures of whatever basis. However, there are some areas where technical assistance will have particular significance:
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Finance
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Technical assistance is often provided as a form of aid given to developing countries by international organizations, individual governments, foundations, and philanthropic institutions, or sometimes as a form of support by government to electricity businesses and developers. As such it acts as a type of grant or subsidy | |
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Other Non-Financial Interventions
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Institutional restructuring – implies that current institutions and their responsibilities are not well aligned with the latest challenges of electricity provision, and therefore that technical assistance may be particularly beneficial. Regulatory Reform – electrification has been predominantly based upon the central grid structures that are driven by the national electricity utility. Regulations have consequently been prepared to cater for this framework. Elsewhere in the world, this model has been replaced with a greater focus on decentralised solutions that can be more cost-effective, particularly when connecting remote areas. Using the experience gained from elsewhere, technical assistance can help to reform current regulations, enabling them to address a combination of remote grid-extension, mini-grids and stand-alone systems, thereby allowing more rapid progress to the use of modern technology options. Policy/Target-Setting – the preparation of policy and defining relevant targets are important developments that will guide the nature of electrification expansion, determine the rate of appropriate new connections, and ultimately determine the success of related efforts. Such processes have been implemented for many years in countries and so there are many sources of international skills and experience that will assist countries to prepare effective policy and define relevant targets. The provision of technical assistance can achieve the transfer of this knowledge and so help achieve positive outcomes sooner. Quality/Technical Standards – technical assistance can help to transfer the skills and experience from countries that have developed effective technology and service standards, bring to developing countries the approaches required to ensure the application of appropriate systems and technologies for electrification. Without such standards, suppliers are likely to install low-cost and inefficient systems, thereby undermining the creation of any sustainable market. Technical assistance can help countries to invest in the preparation of standards that will provide a solid foundation for the expansion of cost-effective power supply. Capacity Building/Awareness-Raising – technical assistance differs from capacity building and awareness raising in that technical assistance involves directly undertaking activities on behalf of those being supported, whereas capacity building’s aim is to build the skills and understanding of stakeholders to enable them to undertake activities on their own behalf. There is clearly a high degree of commonality between the two approaches and they are often undertaken in concert. Technology Development/Adoption – technologies that can meet the needs of local users, based on the supply of local resources, are needed to enable affordable access to electricity in remote areas. There is great experience of technology development internationally, and technical assistance to transfer appropriate technology can provide swift progress towards the best available systems for the needs of targeted communities. The efficient identification, development and implementation of appropriate electrification technologies is likely to be achieved much more quickly if relevant technical assistance can be provided. |
Advantages and Disadvantages (Including Level of Electrification Provided)
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The great benefit of carefully targeted technical assistance is that actors in the target countries are empowered to deliver and maintain electrification initiatives without having to experience the trial and error that is usually associated with any new venture. Such assistance can transfer the skills and experience from operators who have many years of experience with electrification programmes and can therefore help to direct the local players to achieve the most cost-effective results. Duplication of irrelevant or unsuccessful initiatives can be avoided, thereby reducing the costs to project implementers and increasing the likelihood of achieving successful results. One potential disadvantage of (poor) technical assistance is that it could lead to adoption of standard solutions without adequate consideration of the specific context and circumstances . Another is that, unlike capacity building, technical assistance does not leave a legacy of expertise, so unless accompanied by capacity building is most suitable for one-off activities which are unlikely to be repeated. Finally there is the potential for technical assistance to be misdirected. Care must therefore be taken with the selection of experts to provide technical assistance in order to avoid recommendations to uninformed local stakeholders that will simply not achieve the required electrification results in an effective or efficient manner. Any such external experts must therefore be required to identify and engage with the key local stakeholders in order to understand the current situation, the interests and expectations of the target local community(ies), and the values that they associate with different types of service. Only once the desired outcomes are clearly understood can any technical assistance provide substantive and value with lasting results. |
Further Information and Guidance
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Relevante Case Studies
Capacity Building & Awareness Raising
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Definition: |
Capacity building refers to increasing the knowledge, skills and understanding of stakeholders involved in electrification, often through training. Awareness raising, as part of capacity building, refers to educating stakeholders about opportunities, benefits and issues related to increased electrification. Extending electricity provision in any developing country will involve a wide range of actors, including power generators and distributors, standalone system providers, policy-makers, regulators, installers, financiers and users. All of these groups require sufficient capacity in terms of skills and understanding to enable the process of electrification to be fulfilled successfully. Building this capacity is therefore a key requirement. A donor-funded project can bring the immediate benefits of electricity to a remote community, but without the training to equip local people with the capability to operate, service, and maintain the systems installed, the initially positive results from such an intervention will be short-lived. This is equally true for the processes and systems around electricity provision – without sufficient knowledge of the options policy makers are unlikely to be able to design effective regulatory structures and intervention programmes; without technical and business skills electricity providers will not deliver quality, cost-effective, sustainable electricity access; without awareness of electricity options and their uses and limitations, users will not be able to effectively secure its benefits, and will not create the political will to drive electrification. Training and awareness raising are therefore key to lasting positive impact. Training – the most common route for transferring skills to build capacity of relevant stakeholders is through engagement with experts who can explain and demonstrate the details of the actions required. Such training is often undertaken with groups of individuals who have similar roles, perspectives and needs. This allows one trainer to reach several recipients, but also enables interaction between participants, which can raise new perspectives and issues to resolve. To be effective, such training must have a clear goal with measurable outputs so that the participants can assess their comprehension of the issues and their ability to implement the new skills. With respect to electrification expansion, the requirements of the target groups must be clearly determined in advance and the relevant training components and structure designed accordingly. Practical application – capacity building is unlikely to be successful if new principles and processes are learned about through knowledge transfer and classroom instruction alone. Whilst this can lead to greater understanding of the issues in the short-term, such information is unlikely to be retained without application in a work context. There is need for the recipients to use their newly acquired skills under the observation of experts/instructors, to gauge their effectiveness and to adjust their approach as necessary. Any efforts to increase the capabilities of key actors for electrification expansion should therefore anticipate a sufficient timeframe to ensure that such skills are fully integrated into the outlooks and performance of stakeholders concerned. |
Internactions wiht other NAE Categories
Since capacity building can be applied in all areas of activity related to national electrification activities, each of the other NEA categories can be impacted to some degree. However, there are some categories where capacity building may have a significant effect, such as those indicated below.
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Technology
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one of the most frequently identified constraints on mini-grid and standalone system businesses is the lack of staff with the technical skills to install, operate and maintain the equipment. As these businesses start up and enter new markets it is impractical for them to train the staff they need themselves, and a government-led programme of training in coordination with industry associations, academic and technical institutions can give a significant boost to off-grid elements of electrification. | |
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Delivery Models
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Where there is a move from a purely public to private or public-private models, it will be necessary to grow the rather different skills needed in this context. For public-private partnerships in particular, there is often initially a significant difference in perspectives, interests and desired outcomes. For this reason, it is important to build capacity and understanding on both sides of the different views and approaches in order to establish reach agreement on the best approach to increased electrification. | |
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Legual Basis |
For a regulatory structure to work smoothly, both the regulators implementing it and the electricity providers governed by it must understand it well. It is therefore important when developing a regulatory structure to ensure that staff a trained in both the principles underlying it and its practical application, and that information on it is made readily available to electricity providers. | |
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Price/Tariff Regulation | ||
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Finance
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In order to attract private finance electricity will need staff with business skills to develop business models and plans setting out forecast costs, revenues, risks and how they will be managed. Equally for electricity businesses to be cost-effective and sustainable calls for financial management skills. As new businesses enter the sector they will need to access these skills and a government-led programme | |
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Other Forms of Non-Financial Interventions
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Institutional Restructuring – to accommodate the increasing move from centralised grid extension to decentralised electricity connections, institutions dealing with electricity supply, transmission and distribution have been reformed over several years. This experience, including the lessons learned and subsequent measures taken, will be relevant to developing countries that are currently undergoing a similar transition. This aspect of capacity building will be important to build the capabilities amongst officials that will take responsibility for such restructuring measures. Regulatory Reform – in the same way that institutions must adapt to the new environment for electrification, existing regulations must also be reformed. Regulators are likely to have experience of the conditions necessary for centralised grid expansion, but will be much less familiar with the regulations that are most appropriate for e.g. mini-grids and stand-alone systems in remote areas. Building the capacity of regulators, and the associated government officials in this respect will be essential for effective development of this market. Quality/Technical Standards – although the standards set in any country for power supply must reflect the national perspective, there is extensive international experience with the application of standards. National and international standards bodies have been established to address this issue. Raising awareness of such international experience, and transferring skills and understanding regarding the factors to take into account when setting quality/technical standards for electrification, can have great value. Technical Assistance – technical assistance differs from capacity building and awareness raising in that technical assistance involves directly undertaking activities on behalf of those being supported, whereas capacity building’s aim is to build the skills and understanding of stakeholders to enable them to undertake activities on their own behalf. There is clearly a high degree of commonality between the two approaches and they are often undertaken in concert. Awareness-raising, training and associated measures will often be resisted due to a lack of local resources. International development institutions or national governments can address this constraint by including provision for appropriate capacity building within technical assistance programmes. |
Advantages and Disadvantages
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The advantages of well-targeted capacity building, including raised awareness, is that previously-constrained operators in the electrification sector can be equipped with new skills that enhance their performance and so achieve more successful results. If executed efficiently, any training processes can ensure that recipients are aware of the most recent experience and approaches regarding electrification, and have the capability to apply these measures in their own local context. This will usually lead to increased efficiency of operations in terms of cost-effectiveness, greater impact, reduced timeframes and successful outcomes. A lack of such capacity can limit the potential benefits from intended access to electricity in remote areas. The only disadvantage related to capacity building is the cost and the time required to complete the relevant transfer of skills and experience. Often this will rely on international sources of expertise, which will be associated with significant charges for the transport of relevant experts to recipient countries, and for their time involved with the instruction of target recipients. Other negative impacts can result from the selection of inappropriate trainers to deliver relevant courses – a mismatch between the skills/experience of the trainer and the needs/expectations of the participants can lead to little value from such interaction. Trainers must also be made clearly aware in advance of the local conditions, customs and approaches in order to make any international capacity-building process worthwhile. |
Further Information and Guidance
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Relevante Case Studies
Market Information
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Definition: |
Making available information useful to a business that is considering entering an electricity market. This may include information on government policies and targets, the regulatory framework, institutional stakeholders, energy resources available for electricity production, demand and willingness to pay for electricity access, current levels of access (including extent of the grid system and plans for its extension) and electricity providers already active in the market. With this information an electricity provider can judge the prospects of building a sustainable, profitable business. Making the information openly available will lower the transaction costs of market entry for new electricity businesses, since it removes the need for each to go through the process of gathering the information for themselves, and thus make the market more attractive. Breadth of Information – the energy source and the physical potential for electricity generation are rarely the deciding factors in investment decisions aimed at new connections. Instead, the most relevant considerations for practitioners are national policies, regulations and market size. Most practitioners consider a combination of physical and non-physical factors, but give more weight to policy and regulatory factors and to the ability to develop local marketing networks. This is due to the higher perceived project risk from factors such as access to target communities (is grid extension or decentralised generation most cost-effective?) than from, for example, the levelised cost of solar radiation. Therefore, an opportunity assessment focused only on the availability of energy resources will not meet the needs of potential operators. This must include consideration of broader market issues to be of any value. Format of market information– the level of detail (granularity) of the information provided is important, since if this is inadequate it will be of little use. It is also vital that information is made available in one place (eg a single on-line portal), and that it is consistent and can be linked together - so that, for instance, the proximity of generating resources and demand centres can be determined. It has also been found that raw data is much more useful to potential project implementers than is processed data. Developers often see only marginal benefits in outputs from processed data (such as maps of target locations) since they have concern over the assumptions and specifications used in creating such outputs. These criteria are unlikely to be fully-aligned with a developer’s findings from a specific location. Consequently, practitioners generally prefer using their own assumptions, value choices, and scenarios within any opportunity assessment – only then can they fully trust the outputs of any model that makes use of the data. Market information should therefore focus on the provision of basic details that reflect the conditions, rather than including any estimates based on this data. Currency– regular updating of market information is critical to its continued relevance, particularly for the entry of potential private sector operators into a new market. Details of policies and regulations may need to be updated even more regularly than physical factors, since there is an expectation of regular changes in the priorities and targets of government and related institutions. To provide such market information will require a dedicated organisation or a dedicated platform hosted by a relevant organisation that provides links to the most up-to-date sources. This should enable the close monitoring of relevant physical and non-physical factors, including policies and regulations that can become quickly outdated quickly. Maintaining up-to-date information sources will be crucial to stimulate stakeholder uptakes of any market details made available. |
Internactions wiht other NAE Categories
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Technology
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The information needed will depend on the form of technology. In making information available, the focus should therefore be on those technologies expected to play a significant part in national electrification. Information on the current and planned extent of the grid system (and the intended timing of extension) will be particularly important for other electricity providers. | |
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Delivery Models |
Provision of market information is most valuable for private delivery models, and may be relevant in a public-private context. | |
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Legual Basis |
Under a concession arrangement, relevant information may be provided through a concession bidding process, and open access information is therefore most likely to be valuable in a licensed or unregulated market context. Information on the regulatory system is an important element of market information provision. | |
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Price/Tariff Regulation | ||
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Finance
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For the private sector to consider any form of investment in electrification, they will need to have access to market information that provides a sufficiently confident assessment of the potential for returns on investment in this market. This includes the potential demand for electricity from newly-connected users, any constraints to operations (such as policy obligations for suppliers, regulations, limited access to energy resources) and any financial charges – or other related costs - that will be applied to electricity supply services. The development of a business plan, which will provide the foundation for any private sector involvement in the electrification market of a country, will only be possible if the private operator has sufficient access to market information – the capacity to generate such information is therefore critical to the cost-effective expansion of electrification. | |
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Other Forms of Non-Financial Interventions
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Regulatory reform – reform of regulations (or the introduction of new, additional laws that require compliance and potentially cause increased costs to any suppliers) must be carefully monitored by any business that is already providing electricity services, or is planning to do so. The availability of relevant market information regarding the status of current regulation and any reforms that are planned or are likely during the term of any envisaged business investment, is a critical factor for any potential investor in the expansion of electricity supply. |
Advantages and Disadvantages
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The great advantage of having reliable market information is that any business can plan accurately, responding directly to user needs and providing a return on investment that will be sufficient to secure continued, and ideally expanded, operations. For increased electrification into rural areas, such information is an essential part of attracting suppliers and financiers. Without sufficient details of the target market, the uncertainties involved in such intervention are simply too great, leading to a risk profile that is untenable for any potential investors. The advantage of providing this information centrally is that it avoids the costs to businesses considering entering the market of each gathering it separately – a cost which may well be so great that it prevents businesses from entering the market at all. The main disadvantage is the costs and resources needed to collate the information and maintain it. If information is not sufficiently accurate, detailed and reliable to meet businesses’ needs, it will be of no use to them and this expenditure will have been wasted. There is also the danger than details available for one location may be inappropriately extrapolated to other user-groups, thereby providing a misleading impression of the business constraints and potential. Market information may also be skewed by the perspective and/or interpretation of the information provider, or the information may be incomplete, lacking essential details that will be critical for accurate business development decisions. Therefore, any market information related to electrification demand in remote areas must to be viewed within the context that it is prepared and supplied. |
Further Information and Guidance
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Relevante Case Studies
Demand Promotion
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Definition: |
Promotional and support measures implemented to encourage the demand-side opportunities that are enabled by electricity access, and so stimulate increased power consumption. It includes, for example, enabling access to finance to allow users to complete the final steps for connection, such as internal wiring, and for the effective use of their new power supply, as well as support for income-generating uses of the electricity that has become available. Even after the extension of electrification to more remote areas, the opportunity for electricity use will be unfamiliar to potential users, whether households or businesses. Support is often required to encourage this target user group to make use of the new power supply that is now available. This will include raising awareness and educating potential users about the benefits of electricity access, and about the most effective means to make use of this new source of energy. However, additional measures are required to ensure that the potential demand for increased electricity use is fully realised. Building demand is important both to increase the social and livelihood benefits of electricity access, and to assist electricity businesses to become economically sustainable. Demand promotion may be undertaken by the electricity provider, or as a support activity by government or other electrification programme implementers Opportunities for productive use – in addition to the personal benefits associated with e.g. improved lighting, television/radio and charging of mobile phones, the new access to energy could have potential for productive use that can generate additional income. Users need to be informed about such opportunities, starting with simple applications such as the refrigeration of drinks for sale, the use of a sewing machine, or a hair-cutter, which can all form the basis of early stage economic activity. Wide uptake of such opportunities within a community can lead to significant economic development, with a resulting increase in purchasing power, and growth of electricity demand. Support for the development of such productive activities, in the form of access to finance and/or technical assistance may be required to maximise the potential for productive use. |
Internactions wiht other NAE Categories
Demand promotion can support electrification across Technologies, Delivery Models and Legal Basis and Price/Tariff Regulation approaches. However, there are some categories where capacity building interact most closely.
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Finance
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Demand growth is important to achieve economic sustainability for electricity businesses, and demand promotion programmes will thus support private finance of electrification. For users, availability of finance will often be a major constraint. There may be costs to the user that are associated with the final technical arrangements for distribution of power within the recipient household, office or operation. Appliances to enable electricity consumption will also be needed. This presents a market opportunity for the private sector, which can offer financial loans with appropriate payback arrangements that increase the affordability of the additional purchases required by new users. Grants or subsidies may be justified to support demand-side measures that will provide electricity access, and the associated basic services, for the target users. Different forms of grants and/or subsidies should be considered to help overcome the financial barriers on the demand-side, in order to facilitate the supply of electricity at a level that will reflect user needs, and help to bring the related social and economic benefits to the target communities. | |
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Other Forms of Non-Financial Interventions
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Technical Assistance – for businesses that now have access to electricity, technical assistance will be extremely useful to help the growth of income-generating activities. The conversion of business operations from dependence upon traditional fuel sources to the use of newly available power, and the addition of processes that were previously unviable without access to electricity can now be implemented. External advice regarding these new measures will help businesses to maximise the efficiency and opportunity for the productive use of electricity. This form of demand promotion will bring direct economic development. Capacity Building/Awareness Raising - there is certainly an overlap between demand promotion and awareness raising, though awareness raising is not limited to demand promotion since it can also be applied to policy makers, or raising potential energy providers’ awareness of the market, or making finance providers aware of associated lending opportunities. At the same time demand promotion extends beyond building increased awareness amongst users to include taking additional action and providing support to facilitate the growth of electricity use. |
Advantages and Disadvantages
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The main advantage of demand promotion activities is that they increase the use of electricity for positive results, maximising the potential benefit to users from their new access to electricity, while also increasing the economic viability of electricity provision. Users are made familiar with the range of opportunities related to electricity access, and are equipped with the skills and resources required to reap the consumer benefits, as well as to develop income-generating activity that can allow broader economic development. The disadvantage of demand promotion is that it will incur a cost to the public sector, or a risk for private financiers, without certainty of the ultimate impact. Inappropriate demand promotion can encourage electricity use for applications that are not the most appropriate for new users. This presents a difficult position for public and private sector financiers to provide justification of their efforts, though the benefits should become more evident over time with the increased rate of economic development in the target community(ies). |
Further Information and Guidance
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Relevante Case Studies
Technology Development & Adoption
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Definition: |
The process of engineering, demonstrating, and bringing into use a new means of electricity provision, or adoption of a technology in use elsewhere and its adaptation to local conditions. Technology match – for successful investment into expanded electrification, the key risks must be addressed. Financial and political risks will be key concerns, and the technology risk must also be considered. This does not necessarily relate to the correct operation of the technology, since most electricity generation, transmission and distribution systems to be used will already be well tried and tested elsewhere. However, there is a risk associated with matching the availability of local energy resources to the technology introduced. For distributed electrification systems, whether mini-grids or stand-alone, renewable energy resources will often be the principle fuel source though hybrid systems may also require diesel fuel. Careful assessment of resource availability is therefore required in advance of any technology selection. This will relate to the natural conditions (such as solar radiation intensity, wind speeds, and water flow rates) but also supply chains associated with biofuels and with any diesel fuel needed for hybrids or back-up systems. Capital vs operational costs – the choice of technology to be developed for remote electrification (whether grid extension, mini-grids or stand-alone systems) must take account of the quality of service, the social and environmental impact, but most importantly the cost implications for users. One fundamental issue is the choice of renewable energy technology or systems using fossil fuels (such as diesel or coal). The capital costs associated with renewable energy technologies can often present a critical barrier to potential users. This is despite the fact that the running costs will be minimal since the energy source is often freely available. Users often do not bear the upfront investment costs of electricity generation from fossil fuels, but may underestimate the longer-term financial obligation that is involved. Independent authorities, including the government, should seek to inform users and investors of the cost implications of technology development, and the likely affordability to the target customers. Introducing innovative financing mechanisms to offset the upfront costs of renewable energy technologies over a period of time is likely to bring great long-term benefit for end-users, as well as for the environment. |
Internactions wiht other NAE Categories
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Technology
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New technologies may sit within a technology category (eg grid extension, mini-grid or standalone) or may span more than one category (eg an advance in electricity storage which could benefit both isolated mini-grids and standalone systems). | |
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Delivery Models
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The private sector will often bring forward new technologies, but they may be reluctant to implement them at scale because of the inherent risk. Private-public partnerships may provide a vehicle to bring in new technology, with the private sector providing the technology know-how while the public sector bears the additional technology risk. Adoption of technologies already demonstrated elsewhere and their adaptation for local use may be undertaken by the public or private sector alone. | |
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Legual Basis
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One reason for offering a concession is to support new technology development. In general, however, there is no particular association between new technology and any particular regulatory structure. | |
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Price/Tariff Regulation |
One of the main purposes in the medium term of adopting new technology is to drive down prices or tariffs, but initial demonstration projects may require a higher return on investment and (in the absence of specific grants or subsidies) this should be recognised in agreed prices/tariffs. | |
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Finance
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Private financiers are in principle interested in investing in new technologies, but may require higher rates of return and/or grants and subsidies to do so. In the medium term new technology should reduce electricity costs and hence user finance. | |
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Non-Financial Interventions
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Quality/Technical Standards – technology development must take account of all the relevant standards that are enforced in the country of implementation. However, such standards should take account of the differing needs of target customers for the expansion of electrification. Such users, often living in remote areas and having a low power demand, will not have the same technology needs as customers who need much greater electricity loads to be provided for. The application of Direct Energy Access Provision – the focus for technology development, and in particular the financial implications, will have direct impact on the provision of energy access for remote communities. Appropriate technologies are required to meet the energy needs of target customers, at a price that is affordable. Only with knowledge of acceptable pricing will technology developers be able to introduce the systems that can provide increased energy access on a sustainable basis for the communities concerned. |
Advantages and Disadvantages
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The advantages of appropriate technology development are widespread, with the main result being the application of affordable systems that meet the needs of the target users. This will require an approach that maximises the use of local resources, including labour, thereby increasing local economic value and income generation opportunities for local people. The implementation of appropriate technology will satisfy the current customer demands and generate increasing interest in the supply of more power to fuel growing numbers of applications and associated job-creation. Technology development that is effectively targeted at local needs can therefore motivate local economic development and lead to a sustainable market for a growing range of electricity supply systems. Disadvantages from technology development for electrification occur if the introduction of new systems is misaligned to the interests and profile of the target customers. In this case, technologies may at one extreme be considered as second-rate solutions for access to electricity and so generate little demand. At the other extreme, systems may be introduced that are too advanced for local needs and unaffordable for the target market. Alternatively they may, in practice, fail to deliver the performance they were planned to achieve, resulting in electricity which is both unreliable and uneconomic. In either case, this will bring frustration to the local communities and possible the rejection of any attempts to provide access to electricity. To avoid this new technologies should always be demonstrated at pilot scale in the local context before being implemented at scale. |
Further Information and Guidance
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Relevante Case Studies
National Energy Planning
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Definition: |
Bringing together information on costs and performance of electricity technologies with data on energy access needs, preferences and willingness to pay and the availability of energy resources for electricity generation, on a geospatial basis to determine how needs can best be met. |
Internactions wiht other NAE Categories
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Technology
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The purpose of national energy planning is to compare the viability and costs of building and operating new, centralised electricity generation and extending the existing grid, with those of local generation and a mini-grid distribution system, or of standalone systems. Which of these is more appropriate in each location depends on a complex relationship between levels of demand, costs of electricity transmission and distribution, availability of energy resources and the capital and operating costs of different forms and scales of electricity generation. National Energy Planning allows the optimum mix of technologies to be established, and hence identifies those technologies which should be the focus of any NEA and on which resources should be concentrated. | |
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Delivery Models |
National Energy Planning helps to establish the technologies most suitable for electricity provision but establishing the most appropriate delivery model is then a further exercise. | |
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Legual Basis |
Once National Energy Planning has allowed the intended mix of technologies to be decided, the legal basis and regulatory framework within which these are to be delivered can be determined | |
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Price/Tariff Regulation | ||
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Finance
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National Energy Planning enables policy makers to assess the overall funding needed for electrification and where this will most effectively be directed. It also provides information on users’ willingness to pay and hence allows the mix of private finance, grants and subsidies and other public funding and user finance needed to be estimated, and so provides valuable information to support design of financial interventions. If the resulting Plan, and the data on which it is based is made available, it can support private investment by acting as a source of market information. | |
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Other Forms of Non-Financial Interventions
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National energy planning can act as the basis for policy and target setting and provide a source of market information. The data and analysis needed to support national energy planning is complex and capacity building or technical assistance may therefore be needed to support the planning process. Because demand forecasting is a key element of energy planning, it will be important to incorporate the impact of any demand promotion initiatives into national energy plans. |
Advantages and Disadvantages
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National energy planning provides assessments of the optimum technology mix needed to meet national electricity access needs and the funding needed to deliver it. It supports development of policies and targets and design of NEAs, and provides a source of market information to bring in private investment. Its main disadvantage is the level of detailed (locationally granular) information and the complexity of the analysis needed. |
Further Information and Guidance
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Relevante Case Studies
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 -
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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