Difference between revisions of "NAE Case Study: Tanzania, Mini-Grids Regulatory Framework"

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= Description<br/> =
 
= Description<br/> =
  
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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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Tanzania has become widely-recognised for successfully establishing an enabling and light-handed regulatory framework for mini-grids.&nbsp; This has included&nbsp; provision for grid connection, and definition of Feed-in Tariffs.&nbsp; It has involved the introduction of a structure that covers licensing, tariff regulation and technical standards.&nbsp; But licenses for private mini-grids are required only for projects that exceed one megawatt (MW). Smaller projects are allowed to register their businesses, which does not require the approval of the regulator, but makes the regulator and other government agencies aware of the enterprise and its activities. The acceptable tariff level is based upon TANESCO's (the electricity utility) avoided costs.&nbsp; This provides the basis for Standardized Power Purchase (SPP) rates, which target generators connected to the national grid and the distribution systems of integrated or isolated mini-grids. When the SPP Agreement covers the delivery of electricity directly to new customers, the provider is allowed to propose its own end-user tariffs, which are allowed to exceed TANESCO standard tariff rates.&nbsp;<span style="font-size: 0.85em;">The Rural Energy Agency (REA) provides a $500 grant to the power supplier in for each connection away from the main grid.</span>
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= Context =
 
= Context =
  
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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 capacity in Tanzania adds up to 1185 MW, which is supplied mainly by hydro followed by gas and oil power sources.&nbsp; The level of electricity consumption was 105kWh/capita (2014).&nbsp; Demand is increasing rapidly due to productive investments (particularly industry and mining) and increasing consumption by connected users and newly connected households.&nbsp; Electricity access for the country's 47m people increased from 7% in 2011 to 40% in 2016 due to several factors including the Government's new "Big Results Now" (BRN) initiative that targets the acceleration of electrification, additional financing to the Rural Energy Fund (REF) using a petroleum levy,&nbsp; and Government subsidies to reduce the connection fees for the final consumer.&nbsp; However, the connection rate in rural areas remains low (11% in 2014).&nbsp; In 2014, TANESCO operated 20 diesel-based mini-grids for remote communities (some interconnected to bordering countries); 13 other rural villages received electricity from small-hydro mini-grids provided by faith-based institutions.&nbsp; The Power System Master Plan (PSMP) of 2012 expects the country to reach 75% electricity access by 2035 (though, more recently, the Government has expressed its aim to electrify all villages by 2021). Installed capacity is projected to increase seven-fold to meet demand. Tanzania has good and underexploited resources of hydropower, geothermal, solar and wind, which the Government is committed to harnessing. After the first two phases of the national Rural Electrification Programme (by June 2016), 4,395 villages in Tanzania were connected to electricity, representing 36% of the 12,268 villages in mainland Tanzania.&nbsp; In its 3rd phase, the project aims to electrify more than 7,873 villages in rural Tanzania over the next 5 years.&nbsp; This involves electrification through grid extension, and through off-grid solutions. (The government has set an objective of increasing access to electricity by off-grid and mini-grid electrification schemes. Official estimates suggest that half the country could be served most cost-effectively by off-grid power, and that mini-grids could benefit around nine million people)
  
 
= Objectives =
 
= Objectives =
  
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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 goal of the Tanzanian Government is to electrify all currently unserved villages by 2021.&nbsp; (There were 7,500 such villages at the time of this announcement by the Rural Energy Agency in 2016).&nbsp; A budget of over 1 trillion Tanzanian Shillings (US$450m) has been allocated for this initiative.&nbsp; According to Energy and Minerals Minister, Professor Sospeter Muhongo (in December 2016), 543.3bn/- out of the 1trn/- budget will be sourced internally with the remaining amount coming from donors.
  
 
= Legal Basis =
 
= Legal Basis =
  
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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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Tanzania’s legislative framework for SPPs was created in 2003 under the Energy and Water Utilities Regulatory Authority Act. This provided the basis for construction of the mini-grid regulatory framework, which was further supported by the Rural Energy Act in 2005, and the Electricity Act in 2008.&nbsp; The 2003 Act created the Energy and Water Utility Regulation Authority (EWURA) as a multi-sectoral regulator. EWURA has established small power purchase agreements (SPPAs) and created a standardized tariff methodology (SPPT). EWURA has created different SPPAs and SPPTs for SPPs connected to the main grid and existing isolated mini-grids.
  
 
= Institutions, Roles and Responsibilities<br/> =
 
= Institutions, Roles and Responsibilities<br/> =
  
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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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*Ministry of Energy and Minerals (MEM): responsible for electrification policy, and the implementing agent of the rural electrification expansion project financed by the World Bank
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*Rural Energy Agency (REA): operational since October 2007, the REA has provided subsidies to co-finance grid extension projects implemented by TANESCO, developed an enabling regulatory framework for SPP, including standardized power purchase agreements (SPPAs) and tariffs, and supported private sector–led rural electrification activities with performance grants (US$500 per connection) and a credit line for rural/renewable energy development that provides long-term financing through local commercial banks.<br/>
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*Tanzania Electricity Supply Company (TANESCO):&nbsp; the national utility that acts as off-taker for power produced from grid-connected mini-grids<br/>
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*Energy and Water Regulation Authority (EWURA):&nbsp; undertakes regulation related to energy and water.&nbsp; Tasks include&nbsp; determining the SPPA tariff and supervising power-purchase and service agreements, issuing licenses, and guaranteeing to preserve the floor prices for 15 years.
  
 
= Interventions<br/> =
 
= Interventions<br/> =
  
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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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Tanzania is a particularly relevant case for examining the off-grid FiT (feed-in tariff) scheme in Sub-Saharan Africa because of its broad institutional efforts to support renewable energy. In 2009 a standardized Power Purchase Agreement (PPA) was introduced and, in 2010, Tanzania adopted a standard tariff methodology.&nbsp; The PPA provides the legal basis to interconnect renewable energy generators into both the national grid or into isolated mini-grids, and to export excess power (up to 10 MW) to the national utility.&nbsp; This regulatory framework addresses licencing and tariff approval for decentralised grids; it combines standardised power purchase agreements, annual tariff adjustment and technology specific tariffs.&nbsp; The tariff calculations begin with EWURA revising annual data from TANESCO, results are then reviewed by a working group and submitted to the EWURA board for approval. Projects <1MW are exempt from any license requirement.&nbsp; The Small Power Producer owner builds, owns and operates the system, and either sells electricity direct to customers or to TANESCO (or both). REA provides the US$500 subsidy per connection with funding from the World Bank.&nbsp;
  
 
= Impacts Achieved<br/> =
 
= Impacts Achieved<br/> =
  
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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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Tanzania has been ranked among the top 10 countries in the world for establishing sustainable business models for renewable energy-based mini-grids.&nbsp; By 2016, after six years of the regulation being enforced, there were 15 standard PPAs signed with SPPs, of which 8 in were already in operation.&nbsp; The PPAs amounted to 40.1 MW, comprising biomass (15.6 MW), solar (2 MW) and hydropower plants (22.5 MW).&nbsp; Several of these were for isolated mini-grids, including 2 solar projects (3 MW), 3 biomass plants (5.1 MW) and 4 hydropower projects (total 12.6 MW) and 3 more are in the pipeline (2 hydropower of 4.1 MW and 1 solar of 1 MW).&nbsp; In addition, there were 32 other SPP projects under development. This shows the increasing numbers of rural energy providers that are being established based on the supportive regulation.&nbsp; For example, in 2016, JUMEME Rural Power Supply Ltd. initiated a project that uses solar hybrid mini-grids to electrify more than 100,000 people and 2,340 small businesses in Tanzania’s rural centres; by 2022, JUMEME aims to implement around 300 mini-grids and supply high-quality and reliable electricity to 1 million customers across Tanzania.
  
 
= Lessons Learned<br/> =
 
= Lessons Learned<br/> =
  
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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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There is a risk that, if isolated mini-grids become connected to the grid, then the electricity price falls - the utility and related stakeholders need to be aware so that this can be effectively managed.&nbsp; Experience has shown delays with payment from TANESCO for the power supplied to the grid - acceptable payment periods must be regulated to ensure that SPPs can operate effectively.&nbsp; Some of the common barriers in Tanzania are high interest rates and SPPs’ difficulties in acquiring land and water rights;&nbsp; based on this experience, the inclusion of land ownership and water rights is recommended for any future national energy policy.&nbsp; Another lesson from the project has been the benefit of multiple source funding for projects, such as mixed grants and loans.&nbsp; It has also been recognised that there the incentive to develop mini-grid projects is constrained due to the uncertainty of grid expansion.
  
 
= Effectiveness<br/> =
 
= Effectiveness<br/> =
  
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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$1500/kW equates to energy capacity of less than 200W which is enough to provide a tier 2 level of energy access at best.&nbsp; The REDP has made very positive process, but represents just a foundation for the increased power supply required to meet the customers' social and economic development needs.
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The estimated costs of electricity generated by an off-grid PV mini-grid in Tanzania range from 0.30&nbsp;US$/kWh to 0.65&nbsp;US$/kWh, though for 90% of the country, this would be less than 0.45&nbsp;US$/kWh. (This does not account for costs related to the specific location project, such as expenses for licensing procedures, shipping, local taxes, &nbsp;handling, installation, and logistics since these are highly dependent on the local conditions).&nbsp; So&nbsp; REA pays $500 per connection and the project developer funds the balance of the capital cost, and operating and maintenance expenses, which are recovered through user tariffs that will usually be less than 0.45US$/kWh.&nbsp; The level of energy access provided will ideally be at tier 5, equivalent to a reliable grid-connect service.&nbsp; However, uncertain local conditions (stemming from unreliable supply chains, constrained operator capabilities and frequent natural hazards in rural areas) often lead to interruptions (for main grid customers as well as mini-grids) that mean, in practice, tier 4 access is more likely.&nbsp; This has therefore provided an affordable source of energy for remote communities (with electricity generated at lower cost than alternative energy supplies for consumers in rural areas - for example, the cost of power from diesel gensets ranges from 0.40 to 2 US$/kWh in addition to specific location costs ).&nbsp; The national grid-electricity tariff is subsidized by the government, leading to an estimated loss of US$0.42 per kWh generated. TANESCO is therefore saving money when investing in PV mini-grids for the promotion of rural electrification.&nbsp; This shows that the approach adopted towards mini-grids regulation in Tanzania has offered good value-for-money.
  
 
= References =
 
= References =
  
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*[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://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic-Documents/Renewable_Energy_in_Africa_-_Tanzania.pdf https://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic-Documents/Renewable_Energy_in_Africa_-_Tanzania.pdf]
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*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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*[http://documents.worldbank.org/curated/en/104231468184784027/pdf/103827-PAD-P153781-PUBLIC-IDA-R2016-0138-1-Box396270B.pdf http://documents.worldbank.org/curated/en/104231468184784027/pdf/103827-PAD-P153781-PUBLIC-IDA-R2016-0138-1-Box396270B.pdf]
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*[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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*[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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*[[Nepal Energy Situation|https://energypedia.info/wiki/Nepal_Energy_Situation]]
 
 
*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]
 
*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://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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*IED. 2013. Low Carbon Mini Grids. Identifying the gaps and building the evidence base on low carbon mini-grids [http://www.ied-sa.fr/index.php/fr/ressources-documentaires/publications/send/2-publications-ied/19-gmg-dfid-ied-nov-2013-vol-1.html http://www.ied-sa.fr/index.php/fr/ressources-documentaires/publications/send/2-publications-ied/19-gmg-dfid-ied-nov-2013-vol-1.html]
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*[http://www.microhydropower.net/download/mhpcosts.pdf http://www.microhydropower.net/download/mhpcosts.pdf]
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*IFC (2012), From Gap to Opportunity: Business Models for Scaling Up Energy Access [http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+sustainability/learning+and+adapting/knowledge+products/publications/publications_report_gap-opportunity http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+sustainability/learning+and+adapting/knowledge+products/publications/publications_report_gap-opportunity]
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*[https://www.researchgate.net/profile/Bikash_Sharma2/publication/237803040 https://www.researchgate.net/profile/Bikash_Sharma2/publication/237803040]
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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]
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*[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]
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*[http://www.oxfordbusinessgroup.com/news/tanzania-lays-out-big-investments-power-generation http://www.oxfordbusinessgroup.com/news/tanzania-lays-out-big-investments-power-generation]
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*[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]
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*[http://www.sciencedirect.com/science/article/pii/S1364032115009181 http://www.sciencedirect.com/science/article/pii/S1364032115009181]
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*[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]
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*[http://www.tanzaniainvest.com/energy/mini-grid-expansion-hindered-high-interest-rates http://www.tanzaniainvest.com/energy/mini-grid-expansion-hindered-high-interest-rates]
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*[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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*[http://www.tanzaniainvest.com/energy/rural-electrification-phase-3 http://www.tanzaniainvest.com/energy/rural-electrification-phase-3]
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*[http://www.tanzaniainvest.com/energy/wb-world-bank-rural-electrification http://www.tanzaniainvest.com/energy/wb-world-bank-rural-electrification]
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*[https://www.usaid.gov/powerafrica/newsletter/july2016/paving-the-way-for-mini-grids https://www.usaid.gov/powerafrica/newsletter/july2016/paving-the-way-for-mini-grids]
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*World Bank. 2014. From the Bottom Up. How Small Power Producers and Mini-Grids Can Deliver Electrification and Renewable Energy in Africa. [https://openknowledge.worldbank.org/handle/10986/16571 https://openknowledge.worldbank.org/handle/10986/16571]
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*The World Bank Group, (2012). Institutional Approaches to Electrification: The Experience of Rural Energy Agencies/Rural Energy Funds in Sub-Saharan Africa. November 14–16, 2011 Dakar, Senegal [https://openknowledge.worldbank.org/bitstream/handle/10986/26073/763820WP0P11090s0to0Electrification.pdf?sequence=1&isAllowed=y https://openknowledge.worldbank.org/bitstream/handle/10986/26073/763820WP0P11090s0to0Electrification.pdf?sequence=1&isAllowed=y]
  
 
{{NAE Acknowledgements}}
 
{{NAE Acknowledgements}}
  
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[[Category:NAE]]
 
[[Category:Tanzania]]
 
[[Category:Tanzania]]
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Description

Tanzania has become widely-recognised for successfully establishing an enabling and light-handed regulatory framework for mini-grids.  This has included  provision for grid connection, and definition of Feed-in Tariffs.  It has involved the introduction of a structure that covers licensing, tariff regulation and technical standards.  But licenses for private mini-grids are required only for projects that exceed one megawatt (MW). Smaller projects are allowed to register their businesses, which does not require the approval of the regulator, but makes the regulator and other government agencies aware of the enterprise and its activities. The acceptable tariff level is based upon TANESCO's (the electricity utility) avoided costs.  This provides the basis for Standardized Power Purchase (SPP) rates, which target generators connected to the national grid and the distribution systems of integrated or isolated mini-grids. When the SPP Agreement covers the delivery of electricity directly to new customers, the provider is allowed to propose its own end-user tariffs, which are allowed to exceed TANESCO standard tariff rates. The Rural Energy Agency (REA) provides a $500 grant to the power supplier in for each connection away from the main grid.

Context

The total installed power capacity in Tanzania adds up to 1185 MW, which is supplied mainly by hydro followed by gas and oil power sources.  The level of electricity consumption was 105kWh/capita (2014).  Demand is increasing rapidly due to productive investments (particularly industry and mining) and increasing consumption by connected users and newly connected households.  Electricity access for the country's 47m people increased from 7% in 2011 to 40% in 2016 due to several factors including the Government's new "Big Results Now" (BRN) initiative that targets the acceleration of electrification, additional financing to the Rural Energy Fund (REF) using a petroleum levy,  and Government subsidies to reduce the connection fees for the final consumer.  However, the connection rate in rural areas remains low (11% in 2014).  In 2014, TANESCO operated 20 diesel-based mini-grids for remote communities (some interconnected to bordering countries); 13 other rural villages received electricity from small-hydro mini-grids provided by faith-based institutions.  The Power System Master Plan (PSMP) of 2012 expects the country to reach 75% electricity access by 2035 (though, more recently, the Government has expressed its aim to electrify all villages by 2021). Installed capacity is projected to increase seven-fold to meet demand. Tanzania has good and underexploited resources of hydropower, geothermal, solar and wind, which the Government is committed to harnessing. After the first two phases of the national Rural Electrification Programme (by June 2016), 4,395 villages in Tanzania were connected to electricity, representing 36% of the 12,268 villages in mainland Tanzania.  In its 3rd phase, the project aims to electrify more than 7,873 villages in rural Tanzania over the next 5 years.  This involves electrification through grid extension, and through off-grid solutions. (The government has set an objective of increasing access to electricity by off-grid and mini-grid electrification schemes. Official estimates suggest that half the country could be served most cost-effectively by off-grid power, and that mini-grids could benefit around nine million people)

Objectives

The goal of the Tanzanian Government is to electrify all currently unserved villages by 2021.  (There were 7,500 such villages at the time of this announcement by the Rural Energy Agency in 2016).  A budget of over 1 trillion Tanzanian Shillings (US$450m) has been allocated for this initiative.  According to Energy and Minerals Minister, Professor Sospeter Muhongo (in December 2016), 543.3bn/- out of the 1trn/- budget will be sourced internally with the remaining amount coming from donors.

Legal Basis

Tanzania’s legislative framework for SPPs was created in 2003 under the Energy and Water Utilities Regulatory Authority Act. This provided the basis for construction of the mini-grid regulatory framework, which was further supported by the Rural Energy Act in 2005, and the Electricity Act in 2008.  The 2003 Act created the Energy and Water Utility Regulation Authority (EWURA) as a multi-sectoral regulator. EWURA has established small power purchase agreements (SPPAs) and created a standardized tariff methodology (SPPT). EWURA has created different SPPAs and SPPTs for SPPs connected to the main grid and existing isolated mini-grids.

Institutions, Roles and Responsibilities

  • Ministry of Energy and Minerals (MEM): responsible for electrification policy, and the implementing agent of the rural electrification expansion project financed by the World Bank
  • Rural Energy Agency (REA): operational since October 2007, the REA has provided subsidies to co-finance grid extension projects implemented by TANESCO, developed an enabling regulatory framework for SPP, including standardized power purchase agreements (SPPAs) and tariffs, and supported private sector–led rural electrification activities with performance grants (US$500 per connection) and a credit line for rural/renewable energy development that provides long-term financing through local commercial banks.
  • Tanzania Electricity Supply Company (TANESCO):  the national utility that acts as off-taker for power produced from grid-connected mini-grids
  • Energy and Water Regulation Authority (EWURA):  undertakes regulation related to energy and water.  Tasks include  determining the SPPA tariff and supervising power-purchase and service agreements, issuing licenses, and guaranteeing to preserve the floor prices for 15 years.

Interventions

Tanzania is a particularly relevant case for examining the off-grid FiT (feed-in tariff) scheme in Sub-Saharan Africa because of its broad institutional efforts to support renewable energy. In 2009 a standardized Power Purchase Agreement (PPA) was introduced and, in 2010, Tanzania adopted a standard tariff methodology.  The PPA provides the legal basis to interconnect renewable energy generators into both the national grid or into isolated mini-grids, and to export excess power (up to 10 MW) to the national utility.  This regulatory framework addresses licencing and tariff approval for decentralised grids; it combines standardised power purchase agreements, annual tariff adjustment and technology specific tariffs.  The tariff calculations begin with EWURA revising annual data from TANESCO, results are then reviewed by a working group and submitted to the EWURA board for approval. Projects <1MW are exempt from any license requirement.  The Small Power Producer owner builds, owns and operates the system, and either sells electricity direct to customers or to TANESCO (or both). REA provides the US$500 subsidy per connection with funding from the World Bank. 

Impacts Achieved

Tanzania has been ranked among the top 10 countries in the world for establishing sustainable business models for renewable energy-based mini-grids.  By 2016, after six years of the regulation being enforced, there were 15 standard PPAs signed with SPPs, of which 8 in were already in operation.  The PPAs amounted to 40.1 MW, comprising biomass (15.6 MW), solar (2 MW) and hydropower plants (22.5 MW).  Several of these were for isolated mini-grids, including 2 solar projects (3 MW), 3 biomass plants (5.1 MW) and 4 hydropower projects (total 12.6 MW) and 3 more are in the pipeline (2 hydropower of 4.1 MW and 1 solar of 1 MW).  In addition, there were 32 other SPP projects under development. This shows the increasing numbers of rural energy providers that are being established based on the supportive regulation.  For example, in 2016, JUMEME Rural Power Supply Ltd. initiated a project that uses solar hybrid mini-grids to electrify more than 100,000 people and 2,340 small businesses in Tanzania’s rural centres; by 2022, JUMEME aims to implement around 300 mini-grids and supply high-quality and reliable electricity to 1 million customers across Tanzania.

Lessons Learned

There is a risk that, if isolated mini-grids become connected to the grid, then the electricity price falls - the utility and related stakeholders need to be aware so that this can be effectively managed.  Experience has shown delays with payment from TANESCO for the power supplied to the grid - acceptable payment periods must be regulated to ensure that SPPs can operate effectively.  Some of the common barriers in Tanzania are high interest rates and SPPs’ difficulties in acquiring land and water rights;  based on this experience, the inclusion of land ownership and water rights is recommended for any future national energy policy.  Another lesson from the project has been the benefit of multiple source funding for projects, such as mixed grants and loans.  It has also been recognised that there the incentive to develop mini-grid projects is constrained due to the uncertainty of grid expansion.

Effectiveness

The estimated costs of electricity generated by an off-grid PV mini-grid in Tanzania range from 0.30 US$/kWh to 0.65 US$/kWh, though for 90% of the country, this would be less than 0.45 US$/kWh. (This does not account for costs related to the specific location project, such as expenses for licensing procedures, shipping, local taxes,  handling, installation, and logistics since these are highly dependent on the local conditions).  So  REA pays $500 per connection and the project developer funds the balance of the capital cost, and operating and maintenance expenses, which are recovered through user tariffs that will usually be less than 0.45US$/kWh.  The level of energy access provided will ideally be at tier 5, equivalent to a reliable grid-connect service.  However, uncertain local conditions (stemming from unreliable supply chains, constrained operator capabilities and frequent natural hazards in rural areas) often lead to interruptions (for main grid customers as well as mini-grids) that mean, in practice, tier 4 access is more likely.  This has therefore provided an affordable source of energy for remote communities (with electricity generated at lower cost than alternative energy supplies for consumers in rural areas - for example, the cost of power from diesel gensets ranges from 0.40 to 2 US$/kWh in addition to specific location costs ).  The national grid-electricity tariff is subsidized by the government, leading to an estimated loss of US$0.42 per kWh generated. TANESCO is therefore saving money when investing in PV mini-grids for the promotion of rural electrification.  This shows that the approach adopted towards mini-grids regulation in Tanzania has offered good value-for-money.

References

Authors

Authors: Mary Willcox, Dean Cooper

Acknowledgements

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

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


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

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