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Difference between revisions of "NAE Case Study: Peru, Concession Model for Standalone Systems"

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[[File:Back to NAE Overview Page.png|center|800px|NAE Overview Page|alt=NAE Overview Page|link=National Approaches to Electrification – Review of Options]]
 
[[File:Back to NAE Overview Page.png|center|800px|NAE Overview Page|alt=NAE Overview Page|link=National Approaches to Electrification – Review of Options]]
<p style="text-align: center;"><span style="color:#003399;">'''<u>Category Dashboard:</u>'''{{NAE Case Study Table Peru}}</span></p>
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{{NAE Case Study Table Peru}}
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= Description<br/> =
 
= Description<br/> =
  
The Rural Energy Development Programme (REDP) aimed to increase energy access from micro-hydro systems, based on a mobilization process which put the community at the centre of planning and implementation. After its launch in 1996 as a small pilot initiative in five remote hill districts, the programme was scaled-up in response to the national Hydropower Development Policy of 2001. Three phases addressed the cycle of pilot operation, expansion, replication, mainstreaming and institutionalization. The programme expanded from 5 to 40 districts in its third phase from 2007-11. Communities were selected based on technical feasibility and requests from residents willing to implement, manage and partly finance each proposed scheme, thereby ensuring ownership and timely execution. The REDP operated at three levels. At the community level, activities focused on planning, implementation, operation, and maintenance of energy systems. This included establishment of Community Energy Funds where revenues - from grants, subsidies, charity, loans and tariff collection - were deposited, and payments made for operations, repairs and maintenance (done entirely by the community).&nbsp; Tariffs were set at local level, with flat tariffs ranging from RS 0.25-2/W/month applied in most cases,. At the district level, activities focused on building capacity to plan, manage, and monitor the rural energy development process.&nbsp; At the national level, activities focused on policy support and coordination based on lessons learnt from decentralized local operations.<span style="font-size: 0.85em;"></span>
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Following approval from National Electricity Office (DGE - Dirección General de la Electricidad), regional governments grant authorisations and final concessions for renewable electricity projects in their region whose installed capacity is greater than 500 kW and less than 10 MW (concessions are not required for interventions less than 500kW). In 2012, DGER requested the regulator to set an official cost recovery tariff for Solar Home Systems (SHS).&nbsp; This was introduced to cover SHS of different sizes and at different locations (coast, highland and jungle), and thereby made such systems eligible for cross-subsidy.&nbsp; In July 2012, DGE granted a rural electricity concession to provide energy to the town of La Lucmilla, in the Cachachi district (Cajabamba Province). This was the first rural electricity concession awarded in Peru based exclusively on domestic SHS. For such concessions, tariffs to rural customers are capped at the level of the maximum regulated urban tariff, and a connection charge is included in the capital cost of the project.&nbsp; Capital cost subsidies are provided for rural electrification projects (each project typically has 200-5000 connections). Tariff cross-subsidies are provided in addition to capital cost subsidies. Productive uses are encouraged to increase rural loads and revenues.&nbsp; Operating and maintenance costs are shared by monthly fees paid by the&nbsp;<span style="font-size: 0.85em;">community and government subsidies.&nbsp; Solar home systems (SHSs) have been recognised as the best option to reach dispersed and remote users.&nbsp;</span>
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= Context =
 
= Context =
  
Nepal has no known major oil, gas, or coal reserves, and its position in the Himalayas makes it hard to reach rural communities, many of which&nbsp; are extremely remote. Nepal has one of the world’s lowest rates of per capita electricity consumption, with an average in&nbsp; 2007 of 86 kWh/year rising to 139kWh/year by 2014. Between 2005 and 2014 peak demand more than doubled from 557 to 1200 MW. In the same period of time annual electricity production increased from 2642 GWh to 4631 GWh. Out of these, 3558 GWh were produced domestically, while 1072 GWh were imported from India.&nbsp; 88% of the population relies on traditional biomass fuels for cooking and heating; about 45% of the population has access to electricity (only 8% in rural areas).&nbsp; The National Electricity Authority (NEA) serves only 15&nbsp;% of the total population with electricity supplied from the main grid and, for these customers, average electricity supply is less than eight hours per day, with load shedding accounting for up to 16 hours during winter.&nbsp; (This level of intermittency means that even those consumers who are connected to the national grid may receive electricity for only 8 hours per day, which means at most a Tier 3 energy supply).&nbsp; The remaining 30% of the population with electricity access are served by the thousands of small installations (e.g. diesel gensets, micro-hydro systems, solar home systems, small island mini-grids.) that are mostly installed at the users' premises in Nepal. There are however untapped hydropower resources of about 83,000 MW, with 43,000 MW deemed to be economically viable for development.
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The total installed power generation capacity (2016) is 11.72GW.&nbsp; In 2015, Peru generated 9.5% of its total 48TWh from biomass, wind, solar and small hydro. Large hydro accounted for 41.2%, natural gas for 30.8%, and coal, oil and diesel for the rest. &nbsp;Of the 31m population, 21% live in rural areas.&nbsp; In 2016, 93% of the population had access to electricity (compared to 45% in 1990).&nbsp; Grid electricity is used by 39% of the rural households, most of which consume less than 30 kWh per month with 20-40% used for lighting. In rural households without electricity, the most common source of energy for lighting is kerosene (80% of rural households) and candles (65%). Peru’s energy sector was privatised in the 1990´s and concessions were granted for power generation, transmission and distribution. However, although investment in generation, transmission and distribution in urban areas is predominantly private, support for rural electrification comes mainly from public sources.&nbsp; In 2008, for the five year period until 2013, Peru set a 5% mandatory national target for the renewable energy proportion of total electricity consumption.&nbsp; This proved to be an effective motivator (even though, as of 2016, the target had not been revised).&nbsp;&nbsp; In 2008, Peru also introduced a series of project auctions for new power generation from renewable energy sources, including mini-grids and stand-alone systems, which have helped to drive increased access to clean electricity.&nbsp; Every two years, the Ministerio de Energia y Minas (MINEM)&nbsp; evaluates the need for auctions, and the Organismo Supervisor de la Inversión en Energía y Mineria (OSINERGMIN) conducts the tenders. The auctions are technology-specific and contracts are awarded to developers who offer the lowest tariff per kWh for a given technology. Peru has held five renewable auctions, including one for off-grid solar capacity which requested up to 500,000 solar photovoltaic systems for off-grid areas. In the on-grid tenders, OSINERGMIN has awarded power contracts to 64 projects for a total of 1,257MW from biomass, small hydro, solar and wind sources.
  
 
= Objectives =
 
= Objectives =
  
REDP was launched in 1996 with the aim of expanding energy access to remote rural communities, strengthening capacities of energy institutions and establishing a national rural energy policy framework.&nbsp; The ultimate objectives were:&nbsp; i) develop best practices for rural electrification, bringing new models and continuous learning for rural energy access and poverty alleviation in Nepal; ii) build local capacity to increase energy access through a community management model in 40 districts, iii) develop productive and other end uses, including for women and the socially excluded; iv) support the AEPC for energy planning and the preparation of a Rural Energy Policy; and v) pilot innovative approaches for long-term micro-/mini hydro. There were few quantitative targets, though the aim for phase II was to provide 3MW of increased supply (though the outcome fell 20% short of this aim).
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The concession for providing electricity via solar home systems was part of Peru's longer term plan to make electricity more widely available to people living in rural areas where more than six million people lack access to electricity.&nbsp; Peru’s renewable-based rural electrification master plan identifies the need to expand renewable electricity to more than 361,847 homes.&nbsp; The plan calls for 10,829 villages with 10 households or more as target villages for electrification by photovoltaic (PV) panels. The plan is divided into four phases, with the aim of reaching completion in 2020 with the electrification of 261,520 households through the use of PV panels.
  
 
= Legal Basis =
 
= Legal Basis =
  
The Renewable Energy Development Programme (REDP) of Nepal was an international co-operation programme supported by the World Bank and United Nations Development Programme, in partnership with the national Government.&nbsp; The Alternative Energy Promotion Centre (AEPC), the managing agency for REDP, is a Government entity. The Department of Electricity Development (DoED), oversees the issuing of licenses for hydropower projects, though no licensing is required for projects of up to 1,000 kW capacity.
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The Legislative Decree No. 1002, dated May 2008, is the “Law for the Promotion of Electricity Generation with Renewable Energies”.&nbsp; In addition, Peru has a Rural Electrification Law (Ley de electrificacion rural y de localidades aisladas de fronteras-No.27744), which states that the electrification of rural areas, and isolated localities in the country are a national need and are publicly required.&nbsp; On the basis of this RE Law, a “Plan Nacional de Electrificación Rural" (PNER) is prepared every two years, with the current PNER covering 2016-2025.&nbsp; Concessions are governed by the Electricity Concessions Law (LCE) of 1992..
  
 
= Institutions, Roles and Responsibilities<br/> =
 
= Institutions, Roles and Responsibilities<br/> =
  
Many entities – including the government, non-governmental organizations, international organizations, and private institutions – are involved in promoting renewable and rural energy service delivery in Nepal. Overarching authority for electrification efforts is provided by the Nepal Electricity Authority (NEA), established in 1984, whose primary objective is to generate, transmit, and distribute adequate, reliable, and affordable power by planning, constructing, operating, and maintaining all generation, transmission, and distribution facilities in Nepal’s power system. Thus, NEA’s engagement in rural electrification is primarily through the national grid system. Off-grid, decentralized energy service provision is led by the Alternative Energy Promotion Centre (AEPC), established in 1996 as an autonomous agency within the Ministry of Environment (MoEnv). AEPC presides over various rural energy projects, including the Rural Energy Development Programme (REDP). REDP projects received about 45% grant finance through the programme (from the World Bank and UNDP), a 16% subsidy from the Government of Nepal, and about 10% from Village and District Development Committee (VDC/DDC) funds, representing a total subsidy of approximately 70%.&nbsp; The remainder was paid via the tariffs collected from users.&nbsp; (The total programme cost for the Phase III was USD 35 million, which consisted of&nbsp;: UNDP – USD 3.4 million; World Bank – USD 16 million; GoN – USD 5 million; and community – USD 10.6 million). Private sector firms such as the Rural Energy Services Centre (RESC) provided technical support services to communities for feasibility studies and installation, operation and maintenance of RE systems.
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National Electricity Office (DGE - Dirección General de la Electricidad), under Ministerio de Energia y Minas (MEM): in charge of setting electricity policies and regulations, and of granting concessions. Also responsible for elaborating generation and transmission expansion plans, and for approving procedures for the operation of the electricity system.
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General Directorate of Rural Electrification (DGER - Direccion General de Electrificacion Rural), under MEM:&nbsp; responsible for rural electrification (using stand-alone systems and mini-grids).&nbsp; This includes administration of the rural electrification fund, planning, designing and constructing the relevant rural electricity systems, and coordination of such activities with local/regional governments and electricity enterprises. (Once they are finalized, the rural electricity systems are handed over for operation either to state-owned distribution companies or to a specially created state-owned asset-holding company that manages the systems under operation contracts with state-owned companies, or municipalities).
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Empresa de Administracion de Infrastructura Electrica S.A. (ADINELSA): a state-owned entity that is the main implementing company in the field of rural electrification, responsible for administering publicly-funded rural electrification activities outside the concession areas.
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Organismo Supervisor de la Inversión en Energía y Mineria (OSINERGMIN):&nbsp; responsible for enforcing compliance with the Electricity Concessions Law and with legal and technical regulations related to activities in the electricity, hydrocarbon and mining subsectors; also in charge of ensuring the electricity public service.
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Centre for Energy Conservation and the Environment (CENERGÍA):&nbsp; a non-profit body that promotes clean energy and energy efficiency for all the economic activities in Peru
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National Institute for Defense of Competition and the Protection of Intellectual Property (INDECOPI): in charge of monitoring compliance with the Anti-monopoly and Anti-oligopoly Law of 1997, and deals with concession agreements in this context.
  
 
= Interventions<br/> =
 
= Interventions<br/> =
  
REDP focuses on involving local communities and building institutional capacities and local skills.&nbsp; It created a Rural Energy Fund at the district level (using the grant funds from the WB, UNDP and the Government) that provided subsidies for mini-grid electrification. Micro- and mini-hydropower systems (up to 1,000 kW) were made exempt from certain taxes, royalties, and licensing requirements.&nbsp;&nbsp; Key elements of the REDP interventions included: i) community mobilization to encourage and support them in undertaking productive activities resulting in strong social capital, economic growth, and environmental sustainability. Even the poorest families were made capable to own and use the systems, and pay a tariff for the electricity consumed; ii) broad-based participation to ensure transparency and consensus-based decision-making by all households; iii) support for institution building, helping to create District Energy and Environment Sections in the District Development Committees (DDCs); iv) training for local NGOs, community groups, and the private sector to strengthen their technical and managerial skills to deliver and manage micro-hydro systems.
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Following DGE approval, regional governments grant authorisations and final concessions for renewable electricity projects in their region whose installed capacity is greater than 500 kW and less than 10 MW (concessions are not required for interventions less than 500kW).&nbsp; In 2012, DGER requested the regulator to set an official cost recovery tariff for Solar Home Systems (SHS).&nbsp; This was introduced to cover SHS of different sizes and at different locations (coast, highland and jungle), and thereby made such systems eligible for cross-subsidy.&nbsp; In July 2012, DGE granted a rural electricity concession to provide energy to the town of La Lucmilla, in the Cachachi district (Cajabamba Province). This was the first rural electricity concession awarded in Peru based exclusively on domestic SHS.&nbsp; For such concessions, tariffs to rural customers are capped at the level of the maximum regulated urban tariff, and a connection charge is included in the capital cost of the project.&nbsp; Capital cost subsidies are provided for&nbsp; rural electrification projects (each project typically has 200-5000 connections). Tariff cross-subsidies are provided in addition to capital cost subsidies.&nbsp; Productive uses are encouraged to increase rural loads and revenues.&nbsp; Operating and maintenance costs are shared by monthly fees paid by the community and government subsidies.&nbsp; Solar home systems (SHSs) have been recognised as the best option to reach dispersed and remote users.
  
 
= Impacts Achieved<br/> =
 
= Impacts Achieved<br/> =
  
The impressive performance of the REDP is reflected by its outputs, which included the preparation of pragmatic policy and regulation based upon the lessons learned, and the internalization of rural electrification development at country, district and community levels. 317 micro-hydro mini-grids with a cumulative capacity of 5,814 kW were implemented,&nbsp; benefitting almost 350,000 people living in rural areas unlikely to be grid-connected for at least five years. At the end of the project period, an additional 137 micro hydro systems were at an advanced stage of installation and expected to generate 4,441 kW, providing electricity services to an additional 250,000 people (42,000 households).&nbsp; By 2014, more than 1,000 micro-hydro plants with total generation capacity of 22 MW had been developed, providing off-grid electricity access to 20% of the population, including power for agro-processing and other productive activities. Local governments have integrated the REDP approach into local development planning (rather than leaving isolated, donor-funded projects) and they have supported the capacity development needed for sustainable impact.
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This initiative has met a two-fold objective of improving communities’ living conditions and developing organizational, technical and managerial skills at local, municipal, regional and national levels. At a national level, the process of granting concessions has had a positive impact on affordability, with the average contracts awarded in Feb 2016 for wind and solar projects representing the lowest prices recorded on an unsubsidised basis in the Western Hemisphere at the time.&nbsp; Concession companies today have high payment rates and low losses.&nbsp;
  
 
= Lessons Learned<br/> =
 
= Lessons Learned<br/> =
  
REDP’s community-based approach to energy planning and managing rural energy systems has proven to be an effective model for decentralized energy solutions, providing an attractive alternative to what had historically been a weak and centralized government approach to rural energy development.&nbsp; Key drivers of success were: national ownership and commitment, local engagement, catalytic finance, community mobilization and local partnerships, and capacity development at all levels.&nbsp; The funding arrangements were particularly significant, including a relatively well-functioning subsidy scheme and the mini-hydro revolving debt fund, with communities financing an increasing proportion of the costs as the programme progressed.
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The dramatically increased rate of rural electrification since 2007 was due to a variety of key factors including i) highest level political commitment, ii) specific legislation established for rural electrification, iii) dedicated institutional and financial capacity created (DGER and the Rural Electrification Fund with US$150-200m/year), iv) objectives broadened from energy access to rural development, v) productive uses included and served.&nbsp; Other lessons learned from the experience in Peru were i) Key elements are government commitment, leadership and adequate resources, ii) specific institutional, legal and regulatory frameworks are required, iii) an appropriate system of capital cost subsidies and tariff cross-subsidies can allow service providers to receive cost reflective tariffs while rural people pay an affordable tariff, iv) an official tariff for individual SHS opens the door to regulated service by distribution companies and access to tariff subsidies, v) the promotion of productive uses enhances benefits for rural&nbsp; communities and providers.&nbsp; One concern with the concession model in Peru is that concessionaires are concentrated in small areas around urban centres and have an obligation to meet service requests only within 100 meters of the existing network. There is thus no incentive for either public or private companies to extend service to households outside these concession areas. In addition, decision-makers should be made aware of the constraint placed on alternative clean energy development prospects for rural areas.&nbsp; For example, the concession approach can deter other renewable energy use in isolated areas due to the subsidies available; subsidies for fuels awarded to electricity concession companies for isolated systems represent a barrier to the economic viability of renewable technologies that face the “business as usual” scenario.
  
 
= Effectiveness<br/> =
 
= Effectiveness<br/> =
  
The micro-hydro power systems constructed with support from REDP, have a cost range of US$1280-1780 per kW.&nbsp; The investment cost per connected household (cost of micro-hydro infrastructure and&nbsp; village distribution system) is estimated at about US$ 325 of which approximately US$70 is paid by the customer (for internal wiring and a connection charge).&nbsp; This is good value for customers, who have reduced their average annual household spending on energy by US$22 (from US$41 to US$19), which represents a payback period of about 3 years for an improved and far more convenient service.&nbsp; It also reflects well on the government support that has been provided (with input from the United Nations Development Programme), particularly the funding to offset capital costs, which is otherwise a key barrier. The REDP has been recognized as a "best practice" programme, receiving awards in various national and international events for the approach and achievements made. It should however be recognised that REDP is aimed to advance rural households from no electricity supply to the first step on the energy access ladder.&nbsp; Committed finance of US$325 per household at an average of US$1500/kW equates to energy capacity of less than 200W which is enough to provide a tier 2 level of energy access at best.&nbsp; The REDP has made very positive process, but represents just a foundation for the increased power supply required to meet the customers' social and economic development needs.
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A rural consumer's average energy consumption was 8kWh/month.&nbsp; The promotion of stand-alone systems was motivated by the increasing cost of grid expansion, which grew from US$450/consumer in 1993 to US$3500/consumer in 2011. This compares to US$1000 for a PV (80W peak) connection that provided 10-11kWh/month, or US$1700 for a 160W peak connection delivering 16.5kWh/month.&nbsp; These estimated power outputs from the PV systems are possible based on&nbsp; the studies of solar radiation elaborated by the Ministry Energy and Mines (MEM), which is a critical factor when determining the likely value for money.&nbsp; Using these estimates, the provision of stand-alone PV systems for such rural areas was therefore a very cost-effective approach for providing a tier 2 level of service for energy access.&nbsp; The expected time delay for grid expansion to such areas (10-20 years) was another factor that was well-addressed by stand-alone systems.
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= Overview of Other Country Case Studies =
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{{NAE Case Studies Navigation Table}}
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= References =
 
= References =
  
*[http://www.aepc.gov.np/rerl/uploads/publication/6attachment2.pdf http://www.aepc.gov.np/rerl/uploads/publication/6attachment2.pdf]
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*[https://energypedia.info/images/5/5f/Documentos_Rural_Electrification_in_Peru_db7943a3.pdf https://energypedia.info/images/5/5f/Documentos_Rural_Electrification_in_Peru_db7943a3.pdf]
*Bouille et al (2010). Policies For Energy Access [https://pdfs.semanticscholar.org/abc5/eeed05d6f30d72169c29cad7f6f69b8002ad.pdf https://pdfs.semanticscholar.org/abc5/eeed05d6f30d72169c29cad7f6f69b8002ad.pdf]
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*[[Peru Energy Situation|https://energypedia.info/wiki/Peru_Energy_Situation]]
*[https://www.climate-eval.org/sites/default/files/evaluations/364 Rural Energy Development Programme.pdf https://www.climate-eval.org/sites/default/files/evaluations/364 Rural Energy Development Programme.pdf]
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*[http://www.esmap.org/sites/esmap.org/files/ESMAP_PeruNationalSurvey_Web_0.pdf http://www.esmap.org/sites/esmap.org/files/ESMAP_PeruNationalSurvey_Web_0.pdf]
*[https://www.dmu.ac.uk/documents/technology-documents/research-faculties/oasys/project-outputs/working-papers/wp17---nepal-case-study.pdf https://www.dmu.ac.uk/documents/technology-documents/research-faculties/oasys/project-outputs/working-papers/wp17---nepal-case-study.pdf]
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*IOREC (2016), 3rd International Off-Grid Renewable Energy Conference & Exhibition [http://iorec.irena.org/IRENA_Accelerating_off-grid_renewables_2017.pdf http://iorec.irena.org/IRENA_Accelerating_off-grid_renewables_2017.pdf]
*[[Nepal Energy Situation|https://energypedia.info/wiki/Nepal_Energy_Situation]]
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*[http://partnership-africa.org/sites/default/files/12-Susan-Bogach-Rural-Electrification-in-Peru.pdf http://partnership-africa.org/sites/default/files/12-Susan-Bogach-Rural-Electrification-in-Peru.pdf]
*EUEI PDF (2014), Mini-grid Policy Toolkit: Policy and Business Frameworks for Successful Mini-grid Roll-outs. Eschborn [http://www.euei-pdf.org/sites/default/files/field_publication_file/RECP_MiniGrid_Policy_Toolkit_1pageview_(pdf,_17.6MB,_EN_0.pdf http://www.euei-pdf.org/sites/default/files/field_publication_file/RECP_mini-grid_Policy_Toolkit_1pageview_(pdf,_17.6MB,_EN_0.pdf]
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*[https://ruralelec.org/sites/default/files/peru_off-grid_market_12_pages.pdf https://ruralelec.org/sites/default/files/peru_off-grid_market_12_pages.pdf]
*[https://www.giz.de/fachexpertise/downloads/2013-en-bhupendra-pep-informationsworkshop-mini-grids.pdf https://www.giz.de/fachexpertise/downloads/2013-en-bhupendra-pep-informationsworkshop-mini-grids.pdf]
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*Sustainable Energy for All Americas: PERU: Rapid Assessment and Gap Analysis
*[http://www.microhydropower.net/download/mhpcosts.pdf http://www.microhydropower.net/download/mhpcosts.pdf]
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*[http://wbcsdpublications.org/wp-content/uploads/2016/02/WBCSD_case_ACCIONA_energy_Peru.pdf http://wbcsdpublications.org/wp-content/uploads/2016/02/WBCSD_case_ACCIONA_energy_Peru.pdf]
*[https://www.researchgate.net/profile/Bikash_Sharma2/publication/237803040 https://www.researchgate.net/profile/Bikash_Sharma2/publication/237803040]
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*World Bank, (2000), Regulatory Approaches to Rural Electrification and Renewable Energy: Case Studies from Six Developing Countries [http://www.martinot.info/Martinot_Reiche_WB.pdf http://www.martinot.info/Martinot_Reiche_WB.pdf]
*[https://www.stimson.org/sites/default/files/file-attachments/Developing_Nepals_Hydroelectric_Resources_-_Policy_Alternatives.pdf https://www.stimson.org/sites/default/files/file-attachments/Developing_Nepals_Hydroelectric_Resources_-_Policy_Alternatives.pdf]
 
*[http://www.undp.org/content/undp/en/home/ourwork/environmentandenergy/projects_and_initiatives/rural-energy-nepal.html http://www.undp.org/content/undp/en/home/ourwork/environmentandenergy/projects_and_initiatives/rural-energy-nepal.html]
 
*[http://www.undp.org/content/dam/undp/library/Poverty Reduction/Participatory Local Development/Nepal_REDP_web.pdf http://www.undp.org/content/dam/undp/library/Poverty Reduction/Participatory Local Development/Nepal_REDP_web.pdf]
 
*[http://www.worldbank.org/en/news/feature/2015/09/26/ensuring-sustainable-rural-electrification-in-nepal http://www.worldbank.org/en/news/feature/2015/09/26/ensuring-sustainable-rural-electrification-in-nepal]
 
  
 
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{{NAE Acknowledgements}}
 
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[[Category:NAE]]
 
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Latest revision as of 13:21, 16 July 2018

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


Description

Following approval from National Electricity Office (DGE - Dirección General de la Electricidad), regional governments grant authorisations and final concessions for renewable electricity projects in their region whose installed capacity is greater than 500 kW and less than 10 MW (concessions are not required for interventions less than 500kW). In 2012, DGER requested the regulator to set an official cost recovery tariff for Solar Home Systems (SHS).  This was introduced to cover SHS of different sizes and at different locations (coast, highland and jungle), and thereby made such systems eligible for cross-subsidy.  In July 2012, DGE granted a rural electricity concession to provide energy to the town of La Lucmilla, in the Cachachi district (Cajabamba Province). This was the first rural electricity concession awarded in Peru based exclusively on domestic SHS. For such concessions, tariffs to rural customers are capped at the level of the maximum regulated urban tariff, and a connection charge is included in the capital cost of the project.  Capital cost subsidies are provided for rural electrification projects (each project typically has 200-5000 connections). Tariff cross-subsidies are provided in addition to capital cost subsidies. Productive uses are encouraged to increase rural loads and revenues.  Operating and maintenance costs are shared by monthly fees paid by the community and government subsidies.  Solar home systems (SHSs) have been recognised as the best option to reach dispersed and remote users. 

Context

The total installed power generation capacity (2016) is 11.72GW.  In 2015, Peru generated 9.5% of its total 48TWh from biomass, wind, solar and small hydro. Large hydro accounted for 41.2%, natural gas for 30.8%, and coal, oil and diesel for the rest.  Of the 31m population, 21% live in rural areas.  In 2016, 93% of the population had access to electricity (compared to 45% in 1990).  Grid electricity is used by 39% of the rural households, most of which consume less than 30 kWh per month with 20-40% used for lighting. In rural households without electricity, the most common source of energy for lighting is kerosene (80% of rural households) and candles (65%). Peru’s energy sector was privatised in the 1990´s and concessions were granted for power generation, transmission and distribution. However, although investment in generation, transmission and distribution in urban areas is predominantly private, support for rural electrification comes mainly from public sources.  In 2008, for the five year period until 2013, Peru set a 5% mandatory national target for the renewable energy proportion of total electricity consumption.  This proved to be an effective motivator (even though, as of 2016, the target had not been revised).   In 2008, Peru also introduced a series of project auctions for new power generation from renewable energy sources, including mini-grids and stand-alone systems, which have helped to drive increased access to clean electricity.  Every two years, the Ministerio de Energia y Minas (MINEM)  evaluates the need for auctions, and the Organismo Supervisor de la Inversión en Energía y Mineria (OSINERGMIN) conducts the tenders. The auctions are technology-specific and contracts are awarded to developers who offer the lowest tariff per kWh for a given technology. Peru has held five renewable auctions, including one for off-grid solar capacity which requested up to 500,000 solar photovoltaic systems for off-grid areas. In the on-grid tenders, OSINERGMIN has awarded power contracts to 64 projects for a total of 1,257MW from biomass, small hydro, solar and wind sources.

Objectives

The concession for providing electricity via solar home systems was part of Peru's longer term plan to make electricity more widely available to people living in rural areas where more than six million people lack access to electricity.  Peru’s renewable-based rural electrification master plan identifies the need to expand renewable electricity to more than 361,847 homes.  The plan calls for 10,829 villages with 10 households or more as target villages for electrification by photovoltaic (PV) panels. The plan is divided into four phases, with the aim of reaching completion in 2020 with the electrification of 261,520 households through the use of PV panels.

Legal Basis

The Legislative Decree No. 1002, dated May 2008, is the “Law for the Promotion of Electricity Generation with Renewable Energies”.  In addition, Peru has a Rural Electrification Law (Ley de electrificacion rural y de localidades aisladas de fronteras-No.27744), which states that the electrification of rural areas, and isolated localities in the country are a national need and are publicly required.  On the basis of this RE Law, a “Plan Nacional de Electrificación Rural" (PNER) is prepared every two years, with the current PNER covering 2016-2025.  Concessions are governed by the Electricity Concessions Law (LCE) of 1992..

Institutions, Roles and Responsibilities

National Electricity Office (DGE - Dirección General de la Electricidad), under Ministerio de Energia y Minas (MEM): in charge of setting electricity policies and regulations, and of granting concessions. Also responsible for elaborating generation and transmission expansion plans, and for approving procedures for the operation of the electricity system.

General Directorate of Rural Electrification (DGER - Direccion General de Electrificacion Rural), under MEM:  responsible for rural electrification (using stand-alone systems and mini-grids).  This includes administration of the rural electrification fund, planning, designing and constructing the relevant rural electricity systems, and coordination of such activities with local/regional governments and electricity enterprises. (Once they are finalized, the rural electricity systems are handed over for operation either to state-owned distribution companies or to a specially created state-owned asset-holding company that manages the systems under operation contracts with state-owned companies, or municipalities).

Empresa de Administracion de Infrastructura Electrica S.A. (ADINELSA): a state-owned entity that is the main implementing company in the field of rural electrification, responsible for administering publicly-funded rural electrification activities outside the concession areas.

Organismo Supervisor de la Inversión en Energía y Mineria (OSINERGMIN):  responsible for enforcing compliance with the Electricity Concessions Law and with legal and technical regulations related to activities in the electricity, hydrocarbon and mining subsectors; also in charge of ensuring the electricity public service.

Centre for Energy Conservation and the Environment (CENERGÍA):  a non-profit body that promotes clean energy and energy efficiency for all the economic activities in Peru

National Institute for Defense of Competition and the Protection of Intellectual Property (INDECOPI): in charge of monitoring compliance with the Anti-monopoly and Anti-oligopoly Law of 1997, and deals with concession agreements in this context.

Interventions

Following DGE approval, regional governments grant authorisations and final concessions for renewable electricity projects in their region whose installed capacity is greater than 500 kW and less than 10 MW (concessions are not required for interventions less than 500kW).  In 2012, DGER requested the regulator to set an official cost recovery tariff for Solar Home Systems (SHS).  This was introduced to cover SHS of different sizes and at different locations (coast, highland and jungle), and thereby made such systems eligible for cross-subsidy.  In July 2012, DGE granted a rural electricity concession to provide energy to the town of La Lucmilla, in the Cachachi district (Cajabamba Province). This was the first rural electricity concession awarded in Peru based exclusively on domestic SHS.  For such concessions, tariffs to rural customers are capped at the level of the maximum regulated urban tariff, and a connection charge is included in the capital cost of the project.  Capital cost subsidies are provided for  rural electrification projects (each project typically has 200-5000 connections). Tariff cross-subsidies are provided in addition to capital cost subsidies.  Productive uses are encouraged to increase rural loads and revenues.  Operating and maintenance costs are shared by monthly fees paid by the community and government subsidies.  Solar home systems (SHSs) have been recognised as the best option to reach dispersed and remote users.

Impacts Achieved

This initiative has met a two-fold objective of improving communities’ living conditions and developing organizational, technical and managerial skills at local, municipal, regional and national levels. At a national level, the process of granting concessions has had a positive impact on affordability, with the average contracts awarded in Feb 2016 for wind and solar projects representing the lowest prices recorded on an unsubsidised basis in the Western Hemisphere at the time.  Concession companies today have high payment rates and low losses. 

Lessons Learned

The dramatically increased rate of rural electrification since 2007 was due to a variety of key factors including i) highest level political commitment, ii) specific legislation established for rural electrification, iii) dedicated institutional and financial capacity created (DGER and the Rural Electrification Fund with US$150-200m/year), iv) objectives broadened from energy access to rural development, v) productive uses included and served.  Other lessons learned from the experience in Peru were i) Key elements are government commitment, leadership and adequate resources, ii) specific institutional, legal and regulatory frameworks are required, iii) an appropriate system of capital cost subsidies and tariff cross-subsidies can allow service providers to receive cost reflective tariffs while rural people pay an affordable tariff, iv) an official tariff for individual SHS opens the door to regulated service by distribution companies and access to tariff subsidies, v) the promotion of productive uses enhances benefits for rural  communities and providers.  One concern with the concession model in Peru is that concessionaires are concentrated in small areas around urban centres and have an obligation to meet service requests only within 100 meters of the existing network. There is thus no incentive for either public or private companies to extend service to households outside these concession areas. In addition, decision-makers should be made aware of the constraint placed on alternative clean energy development prospects for rural areas.  For example, the concession approach can deter other renewable energy use in isolated areas due to the subsidies available; subsidies for fuels awarded to electricity concession companies for isolated systems represent a barrier to the economic viability of renewable technologies that face the “business as usual” scenario.

Effectiveness

A rural consumer's average energy consumption was 8kWh/month.  The promotion of stand-alone systems was motivated by the increasing cost of grid expansion, which grew from US$450/consumer in 1993 to US$3500/consumer in 2011. This compares to US$1000 for a PV (80W peak) connection that provided 10-11kWh/month, or US$1700 for a 160W peak connection delivering 16.5kWh/month.  These estimated power outputs from the PV systems are possible based on  the studies of solar radiation elaborated by the Ministry Energy and Mines (MEM), which is a critical factor when determining the likely value for money.  Using these estimates, the provision of stand-alone PV systems for such rural areas was therefore a very cost-effective approach for providing a tier 2 level of service for energy access.  The expected time delay for grid expansion to such areas (10-20 years) was another factor that was well-addressed by stand-alone systems.

Overview of Other Country Case Studies

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


References


Authors

Authors: Mary Willcox, Dean Cooper

Acknowledgements

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

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



NAE Overview Page

Any feedback would be very welcome. If you have any comments or enquires please contact: mary.willcox@practicalaction.org.ukbenjamin.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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