A programme to support the private sector delivery of mini-grids was implemented, managed by the national energy agency, AMADER. AMADER provided technical assistance and financial support (investment subsidies) and ensured the successful completion of the procurement process for mini-grid concessions. The tariffs negotiated between the operators and AMADER were different for each concession. Although there is no uniform tariff, the pressure to keep electricity prices low is significant and substantial subsidies were granted to private operators to overcome the gap between the cost-reflective tariff and the (lower) approved tariff. (For mini-grids operated by EDM, tariffs were kept at the same level as those of grid-connected customers, around $0.20/kWh; tariffs for the mini-grids operated by private operators were often much higher at around $0.50/kWh). The private investments were subsidized through the Rural Electrification Fund that is managed by AMADER. Investment subsidies from the REF are designed to yield affordable tariffs for rural customers but still provide an acceptable financial return for the investors. These subsidies were limited to 75% of capital costs, with the local private operators providing the remainder. In this public private partnership, the electricity tariffs were set to recover the private capital cost.
The operation and maintenance costs were passed to end-users.
As of 2014, Energie du Mali SA (EDM) had an estimated total installed capacity of around 400 MW, including both grid interconnected and isolated systems with about 60% hydropower and most of the remainder using imported fuel sources. Approximately a quarter of the population is provided with electricity (59% in urban areas, 14% in rural areas). This reported figure for rural electrification has risen from 2% a decade ago, but the quantity, quality, reliability and affordability of this rural access are often questionable. There is estimated potential for 1150MW of hydropower, of which 250 MW is presently developed (and partly shared with Senegal and Mauritania); this concerns primarily the hydroelectric plants of Sélingué (46 MW) and Manantali (200 MW). In addition, various other sites provide options for mini- or micro-hydro plants. In 2015, the Norwegian project developer Scatec Solar, signed an agreement with EDM and MEE to build a 33MW solar plant, the first utility scale solar plant in West Africa.
The goal is to implement mini-grids when they are the least-cost solution for energy access to remote areas. This requires integration with stand alone systems. There is no apparent target agreed for the number of mini-grid connections to be achieved.
The Energy Sector Organisation Law signed in 2000 allows private sector operators to supply electricity and mini-grid concessions to be established.
Institutions, Roles and Responsibilities
The National Energy Directorate created in 1999 (within the Ministry for Mines, Energy and Water) is responsible for the energy sector. The Electricity and Water Regulatory Commission (CREE) was established in 2000 and is responsible for energy regulation in all areas. Urban electricity is provided by the state-owned utility, Energie de Mali (EDM). AMADER (the Malian Agency for the Development of Rural Electrification) was formed in 2003. It regulates and supports rural electrification independently of CREE (it has responsibility for the regulation of off-grid energy service providers, with generation systems below 250 kW) and manages the Rural Electrification Fund (set up in 2005). AMADER manages the mini-grid program, which includes providing the initial capital cost subsidies to connect new customers (of about $625 per new connection), and makes all major decisions concerning mini-grids.
15-year concessions, granting the right to sell electricity within a specified service area, are awarded by AMADER to private sector mini-grid developers. Concessions specify the level and quality of electricity provision. Concessionaires set their own tariffs, subject to AMADER approval. (Initially AMADER set concession zones and asked developers to bid for these, but the process proved to be too cumbersome). The tariff is expected to cover operating costs and financial costs, and also to include a return on investment for the operator over the 15 years covered by the authorization. (The commonly accepted rate is around 8%, which is low compared to major infrastructure projects where it is generally around 15%). AMADER provides grants from a Rural Electrification Fund (funded by WB & KfW) for up to $500k to subsidize up to 80% of capex costs (including generation, distribution and connections within 15m of distribution lines) for new mini-grids and for hybridizing diesel-powered mini-grids. Developers finance the balance from commercial loans and remittances. If the main grid is extended to the concession area, EDM takes over the assets and compensates the owner for the non-amortized portion of their value. RE components have been made exempt from VAT. EDM grid tariffs have been adjusted towards cost-recovery levels since 2009.
Mali is seen as the most successful country in Africa with the application of isolated mini-grids. There are more than 60 private mini-grid operators, and now more than 200 mini-grids (mostly small diesel) in operation across the country. By 2015, there were over 160 new isolated mini-grids established (in addition to the mini-grids managed by EDM), serving an average of 500 connections each (a total of around 80,000 connections).
Having a rural electrification agency with a specific focus is a key success factor of Mali´s mini-grid roll-out. Mini-grids can act as a valuable intermediate step towards grid electrification for communities. It is important to select mini-grid locations far from the main grid for mini-grid operators (who do not want a connection to the main grid during the 15-year period of their contract since this will undermine the level of their returns). Other lessons include: (i) Offering multiple avenues for private sector participation in the mini-grid sector provides flexibility and may provide unanticipated opportunities for expanded participation (ii) Capital cost grants can support financial viability and sustainability of mini-grid projects (iii) Designating a “one-stop” agency to regulate and provide mini-grid grants can increase efficiency and make private sector engagement more attractive (iv) Allowing mini-grid developers to set their own tariffs can support mini-grid deployment (v) Support for hybridization of diesel-powered mini-grids can reduce operating costs and lower tariffs (vii) Initial process for private developers to bid for concession zones was cumbersome and failed to attract the private sector (viii) Some projects failed due to uneconomic tariffs and/or lack of skills (ix) There have been coordination problems with EDM especially related to grid extension (x) Communities felt disempowered by AMADER (xi) Differences between mini-grid and grid tariffs has created tariff-envy (xii) Confusion regarding the status of concessions following hybridization. Private operators have struggled to get tax exemption and to recover their operating costs.
The approach adopted in Mali has been very effective in establishing a well-functioning mini-grid industry for the supply of electricity to remote areas. The public sector cost has been up to US$500k per mini-grid installation, which on average has typically serviced 500 households. This equates to a connection cost to the Government of maximum US$1000/household. This excludes 20% of the capital and associated installation costs, which must be borne by the supplier and refunded by users who have to pay electricity charges to provide suppliers with an adequate return on the balance of capital and ongoing operating and maintenance costs. (it should be noted that this cost is likely to increase as the location of mini-grids becomes more remote and transport/service becomes more expensive). Even with capital subsidy tariffs, the average price of $0.50/kWh is still much higher than for grid electricity, which brings the danger of tariff envy, particularly from customers near to EDM gridlines. In practice, the 80% capital subsidy has been covered by international donors and so has not required government funds. Such an approach (with a one-off project cost funded by donors) can fulfil the needs of all involved since the donors are satisfied with the outcome and bear no long-term obligation for additional resources, the government can successfully facilitate an essential service to consumers, and a private sector market is developed, with good prospects of being maintained through future expansion, service and maintenance demands from customers. In principal, mini-grids will provide tier 4-5 in terms of the SEforAll energy access ratings, which will be comparable to power from the main grid; in Mali, questions over the reliability of grid supplies mean that the mini-grids will often perform better. This initiative therefore seems to represent good value for money from the perspective of all stakeholders involved.
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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