Mini-grids started to operate in Cambodia soon after the country’s civil war ended in 1975. Government capacity was very low and unable to reach most of the countryside. In this completely unserved and unregulated environment, people started to buy generators and sell power to their neighbours. Mini-utilities sprang up in many villages. Since those early days, the regime in Cambodia has evolved to regulate these enterprises, but with a light touch that allows the enterprises to prosper and grow. The state-owned utility Electricite du Cambodge (EdC) serves approximately 10% of the population with most of its grid infrastructure and customers located in and around Phnom Penh. Small power providers have been encouraged to establish distribution networks and are now licensed by the Electricity Authority of Cambodia, allowing them to borrow from commercial banks. In Jan 2016, 337 companies had been licensed to build distribution systems, outside the grid owned by EdC. Tariffs are set by the Electricity Authority of Cambodia (EAC) in a simple and transparent manner using a price adjustment formula based on the cost of diesel/HFO, which accounts for 95% of electricity generation in Cambodia. The regulatory regime also provides a framework that allows off-grid systems to connect to larger utilities, purchase cheaper power from those utilities, and then on-sell that power to their customers at a regulated distribution margin.
In 2016, 80% of villages and 65% of households had access to grid quality electricity, with the Government aiming to achieve electricity access for all villages by 2020. During the 1970s, the electricity sector was seriously damaged by the civil war when there was only one transmission line in Cambodia connecting the Kiriom I Hydropower Station to the capital Phnom Penh. This ceased to operate in 1973 when most generation, transmission and distribution facilities were damaged or destroyed. Today, there is still no national electricity network and power is supplied via 24 small isolated electricity systems. Statistics released in January 2016 showed that Cambodia consumed 1,985 megawatts of electricity in 2015. Local production amounted to 1,569 megawatts. Electricity was imported from Vietnam (277 MW), Thailand (135.5 MW) and Laos (4 MW). 42% of electrified households outside Phnom Penh are served by decentralized mini-grid systems. Most of these are operated by small power providers in rural communities, are privately run, and are profitable. Often these local companies use diesel for their mini-grids since the fuel is readily available in local markets and runs in small generators that are easy to operate and have fairly low capital costs. (Although Cambodia is endowed with an abundance of hydropower resources, it still depends heavily on fuel-based engines or generators to produce much electricity). However, the Government is committed to increased use of renewable energy, with increased use of hydro and other sources; the first solar farm (10MW in Bavet) is planned to be connected to the grid this year. As part of the Cambodian government’s policy to expand access to electricity, all mini-grids in the country now receive a $45 output-based subsidy for each additional residential customer connected (which is released once the mini-utility provides proof that the connection has been made). These funds allow companies to build out their distribution network further, since it becomes profitable to extend service to lower-income and more remote areas than otherwise possible.
A priority goal of the government is to reduce poverty, and a key strategy for this is the development of sustainable and affordable energy supplies for all its constituents. A particular objective was to provide the best enabling environment for mini-grids to prosper and grow, supplying a significant proportion of the population that live outside the capital city, Phnom Penh. This involved developing market conditions that motivate the sustainable introduction of mini-grid suppliers. The country has set a specific target of 100% electrification by 2020, with distribution lines reaching all villages by 2015. In practice, electricity had reached only 66% of villages in 2015.
The national “Law on Electricity” was adopted by the National Assembly on November 6, 2000 and then promulgated by Royal Decree on February 2, 2001. This law covers all activities related to the supply, provision of services and use of electricity, and other associated activities of the power sector, allowing licensing of isolated and grid-connected mini-grids and distribution systems.
Institutions, Roles and Responsibilities
There are three main players who have considerable power in the electricity sector in Cambodia: the Ministry of Industry, Mines and Energy (MIME), the Electricity Authority of Cambodia (EAC), and the state owned utility Electricite du Cambodge (EdC). Electricity was first introduced to Cambodia in 1906 by Compagnie des Eaux et Electricité (CEE), Union d’Electricité d’Indochine (UNEDI) and Compagnie Franco – Khmer d’Electricité (CFKE). CEE was responsible to supply the electricity to Phnom Penh and suburbs, while UNEDI operated throughout country except Battambang province, which was supplied by CFKE. In 1958, the Government purchased CEE’s and UNEDI’s concession rights to form the Electricité du Cambodge to generate, transmit and distribute electricity for Phnom Penh and provinces throughout the country. During the long war, EdC’s facilities were destroyed, but it remains the most influential of the three key players in the electricity market. As a commercial entity, EdC is required to operate in accordance with market demand and seek to earn a profit. It must prepare, build, own, finance, lease and operate power generation and substations, transmission lines, distribution networks and other infrastructure necessary. This involves the operation of 24 decentralised grid networks. Other players in the market include over 300 IPPs, REEs, and other licensees that import electricity from neighbouring countries or own stand-alone diesel generators. MIME is mainly responsible for the formulation of policies and strategies. EAC was established by the Electricity Law in 2000 as an autonomous public agency with the purpose of regulating the electricity power services, and was granted the right and obligation to penalize, if necessary, the supplier and consumer of electricity in relation to electricity generation and supply facilities. Amongst other responsibilities, EAC issues five types of license for the supply of electricity (consolidated, generation, distribution, retail and special purpose transmission licenses), approves tariff rates and charges, oversees the implementation procedures and standards, and ensures transparency by facilitating information to the public about its activities.
The Government's approach was based upon an intentional lack of restrictions such as exclusive franchises, licensing, and tariff regulation. When a central utility does not have the incentives, cost structure, or capacity to reach grid extension goals, exclusive or monopoly rights can be counterproductive. It was recognised that mini-utilities thrive when they are free from onerous licensing and permitting barriers (even where mini-utilities are not blocked by exclusive franchises, they are still often stymied by onerous licensing procedures and conditions). Cambodia adopted a light regulation approach that meant mini-grid enterprises could prosper and grow. Licenses were granted, allowing mini-utilities to borrow from commercial banks. A regulation framework was introduced to allow off-grid systems to connect to larger utilities, purchase cheaper power from those utilities, and then on-sell that power to their customers at a regulated distribution margin. As part of the Cambodian government’s policy to expand access to electricity, mini-grids in the country are eligible to receive a $45/connection output-based subsidy to offset the upfront capital costs - this government policy has successfully attracted businesses to the mini-utilities space. The Government has also established a Rural Electrification Fund (REF) with the objective to facilitate access to electricity infrastructure and provide a secure, reliable, environmentally safe, and sustainable energy supply of various types, at reasonable and affordable price. Mini hydro plants (and also solar home systems) are eligible to receive subsidies up to 25% of total investment costs.
After a little more than 15 years of development, mini-utilities serve 28% of the rural population on a commercial basis. According to the current national Rural Electrification Master Plan (REMP), the total cost to electrify all villages (including private investment and public subsidy) is about US$ 427 million or US$ 490 per household for future connections, with 872,000 households to be involved. A total of 272,000 households will be electrified in the off-grid areas by decentralized mini-grids and solar battery charging by the target year 2020. The gross investment costs will amount to about $147 million. The remaining villages will be connected through grid extension.
The success of mini-utilities in Cambodia is due mainly to a regulatory regime that allows them to exist. This illustrates a regulatory approach that may be valuable for other governments looking to facilitate the operation of local mini-grids in unserved areas. One important need for future electricity grid integration is the development of standards, which has been achieved in Cambodia with international donor support (provided by JICA to prepare the General Requirements of Electric Power Technical Standard, GREPTS, which was adopted in 2004). A key lesson from Cambodia is simply the value of removing restrictions such as exclusive franchises, licensing, and tariff regulation. Cambodia may be an extreme case, and there is no need to abandon all regulation to get mini-grids working. What is essentially required is to legalize their operations to put them on a sound regulatory footing so that they can do the essentials, such as raising debt. Most mini-utilities cannot offer to connect customers for little or no up-front payment - they are simply unable to finance such large capital outlays on their own. Some financial support from the government has been needed to attract businesses to the mini-utilities space. In many countries, regulation has been used to introduce tariff caps intended to counter the natural monopoly of typical grid utilities, and to make electricity affordable for the poor. But often they have the opposite effect by making it unviable for mini-utilities to enter the market. Mini-utilities typically have a higher cost of service than large integrated grids, but where they are used solely for lighting purposes they compete with solar home systems and lanterns. Regulation can then fail to address the practical needs, restricting rather than facilitating market development, and therefore be unnecessary. For example, in Cambodia, mini-utilities began and flourished without any tariff regulation (though the need for some structure, as the operation of mini-grids expanded, was ultimately provided from 2000 by EAC).
The approach adopted by the Cambodian government (enforced to a large extent due to lack of capacity following the civil war) has avoided restricting the growth of the market for mini-grids, which are expected to serve 31% of villages with grid-quality electricity by 2020. Historically, the average cost of connection to a decentralised mini-grid has been ~US$540/household, which has been made affordable for end users (though whether this includes the initial system installation cost, or just the incremental cost per connection, is not clear). The Rural Electrification Fund (with support from the International Development Association and the Global Environment Facility) has helped to reduce the costs to the target customers, and the government subsidy of US$45/household, made available to Rural Electrification Enterprises for an additional 50,000 connections, has stimulated significant growth. The combination of clear Government targets and limited financial incentives to offset capital costs, has seen the development of an effective commercial mini-grid sector without the need for extensive regulation.
Overview of Other Country Case Studies
Authors: Mary Willcox, Dean Cooper
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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