POLICY AND REGULATORY FRAMEWORKS FOR ENERGY ACCESS IN AFRICA AND DEVELOPING COUNTRIES

Transcription

1 POLICY AND REGULATORY FRAMEWORKS FOR ENERGY ACCESS IN AFRICA AND DEVELOPING COUNTRIES Training programme on Energy Access for Sustainable Human Development Krithika PR 20 th November 2013

2 STRUCTURE OF THE PRESENTATION 1) Lessons from India s energy access programmes for designing energy access policies 2) Designing energy access policies 3) Key elements of the policy and regulatory framework 4) Best practices from the global south 5) Case study

3 Energy Access policies encompass Grid extension Electricity access Access to cooking solutions Off-grid

4 POLICY FRAMEWORK FOR ENERGY ACCESS: LESSONS FROM INDIA

5 INTRODUCTION Electricity is a concurrent subject both federal and provincial governments can legislate and implement Rural electrification level increased from 1500 villages in 1947 (at the time of independence) to more than half a million villages in 2012 (~ 95 % of the villages) Current rural electricity access at 95% of villages & 64% of rural households Installed capacity ~ 1362 MW in 1947 to more than 200,000 MW in 2012

6 KEY POLICIES DRIVING ENERGY ACCESS A. Electricity access 1) Electricity Act (Over Arching Act) Promotion of renewable energy and access to electricity for rural areas via grid or decentralized system, by formulating suitable policies Making rural electrification more effective, by formulating separate policy for rural electrification Exempt any entity from taking license to supply electricity to rural areas Envisioning a comprehensive approach to be followed by SERCs to promote financial and overall viability of renewable and micro grid systems. 2) National Electricity Policy 3) National Tariff Policy 4) Rural Electrification policy Several programmes and schemes for electricity access

7 B. Cooking access National Project on Biogas Development: Started in NPBD has incentives for the plant owners, implementing agencies and the turnkey worker National programme on improved cooksotves Provision of more efficient cookstoves to rural households. Relaunched in 2009 under the guise of National Biomass cookstove inititative Free LPG connections to rural household: A proposal for providing one-time financial assistance to BPL households for acquiring new LPG connections is under government consideration (MoF 2011) LPG penetration in rural areas: The Scheme aims at setting up small size LPG distribution agencies in order to increase rural penetration and to cover remote as well as low potential areas for all the locations having potential of 600 refill sales per month

8 LESSONS FROM INDIA S ENERGY ACCESS PROGRAMMES Definition of electrification - target for village electrification and not household electrification Multiplicity of the programs/policy gaps - funding for each program was not adequate Implementation - not properly coordinated or managed at both federal and provincial level High cross subsidy - utilities lukewarm towards electricity supply to rural areas Emphasis is on top down planning High push for grid extension Poor access to credit/end-user finance Kerosene subsidy biggest regulatory hurdle for transition to clean lighting Do not have convergence with other rural development programmes

9 HOW TO DEFINE AN ENERGY ACCESS POLICY? Clean energy options mainstreamed into the national agenda and planning process Dynamic and evolving Not be supply centric, rather framed with people s needs and demands as key considerations Not over emphasizing grid, cooking access to be equally prioritized Aim for parity between grid and off-grid options

10 DESIGNING ENERGY ACCESS POLICIES Technical feasibility Scalability Equity POLICY FOR ENERGY ACCESS Economi c viability Environm ental feasibility Social sustaina bility Policies for energy access should be designed in line with the sustainability objectives

11 POLICY AND REGULATORY FRAMEWORK FOR ENERGY ACCESS Actors Public Private Legal and institutional framework Acts Regulations Policies Technical standards and guidelines Targets Key policy and regulatory instruments Tariffs Framework Energy access funds Financial incentives Institutional capacity Clarity in roles Streamlined Capacity Cross subsidies Energy subsidies

12 Targets Tariffs Subsidies Cross- subsidies Financial incentives Rural Electrification funds Technical standards and guidelines

13 KEY QUESTION While setting targets for providing access to energy is important, how do you track progress and what can be done to ensure accountability?

14 TARGETS FOR ENERGY ACCESS Credible time bound targets are critical to achieve universal energy access Reduces uncertainty among project developers, provides clarity to target communities Targets should be a part of the national development strategies Targets enforced through annual reporting requirements of utilities as well as performance contracts of key officials E.g. Kenya Electrification targets linked to license renewals and tariff increment. E.g. Kenya licensing of mobile telephone operators Should be adapted to local conditions Governments should define their own targets (access to electricity, cooking technologies etc) and strategies to achieve these targets Indonesia has set a target of 95% 100% electrification of households by 2025 Philippines has set a target of 100% electricity access by 2020

15 Targets Tariffs Subsidies Cross- subsidies Financial incentives Rural Electrification funds Technical standards and guidelines

16 KEY QUESTION What sort of regulatory framework is required for the off-grid sector?

17 TARIFFS Main objective of a tariff policy is to protect the consumer while ensuring the financial viability of a utility Mandate of the regulator Should ideally be designed to reflect the full costs of the service The average power tariff in SSA is around $0.13/kWh, around twice that found in other parts of the developing world!! Full cost approach may involve significant price increases for low income consumers Different forms of tariff setting to keep them affordable for consumers Lifeline tariffs Zero basic charge Inverted rates High grid electricity tariffs and connection fees in Kenya.

18 DIFFERENT FORMS OF TARIFFS Inverted rates Rising price per unit as usage increases rather than a constant or flat rate for all consumption. Eg India, Indonesia Discourage excessive and inefficient use Lifeline tariffs Special rate for low-income households. Lower than the rate available to other households for the same level of service. Revenue foregone from lifeline rates recouped from govt subsidies or standard rate customers Inverted rates Example Tariff Element Basic charge (no kwh) First 200 kwh Additional kwh Service element Basic charge (no kwh) Price $2.00 $0.03/kWh $0.10/kWh Standard rate $5 $3 Life line rate First 200 kwh $0.05 $0.03 Additional kwh $0.10 $0.10 Source: ADB, 2010

19 LIFELINE TARIFFS- EXAMPLES Ghana Lifeline tariffs were introduced in Ghana to the lowest income group, the lifeline, offering a flat rate to customers consuming 50 KWh per month or less Created to minimize the cost to the utility of billing small accounts Philippines Lifeline rate for low-income captive market end users Level of lifeline consumption and corresponding discount rates calculated for each specific service franchise area based on the cost in that area of 2 lighting facilities at 20 watts each and a 50-watt radio used for a certain no. of hours Different levels of lifeline rates in each franchise area. Rate based on consumption is generally <=50 kilowatts. Energy Regulatory Commission has some discretion in setting the maximum level of lifeline consumption

20 OTHER NON-TARIFF MEASURES Load limiters Limits the level of current a consumer receives from a power line Utilities install load limiters in the households of low-income consumers, either as part of their line-extension policy or their rate design Limit the amount a utility needs to reserve for low-income consumers Pre-paid meters Require the consumer to buy a prepaid card for electricity and either plug it into the electric meter or enter a numerical PIN that records the value of prepayment on the card. When the prepaid amount is exhausted, the electricity stops flowing until a new card is purchased. E.g. Philippines, Singapore, South Africa

21 Targets Tariffs Subsidies Cross- subsidies Financial incentives Rural Electrification funds Technical standards and guidelines

22 KEY QUESTION How can subsidies be designed more effectively, which do not merely focus on capacity addition rather reward performance?

23 SUBSIDIES Well-designed, targeted subsidies are necessary to ensure affordability to consumers Power to the Poor (P2P), Lao PDR Poorly designed subsidy schemes can undermine the financial health of power utilities Generally justified as a response to inequality, however the net effect can be positive or negative depending on the intended goals of the subsidy, and the way a subsidy is implemented If subsidies are provided to increase connections to poor, clear criteria defined for identifying poor customers Fuel Subsidies LPG subsidies: India, Kerosene subsidies: Indonesia Electricity subsidies - India Subsidized financing mechanism implemented by Electricité du Laos (EdL) Provides affordable connection and indoor wiring to poor households Designed with a gender focustargets female-headed poor households. A no-cost basic 3/9 Ampere meter (low voltage) to use 2 light bulbs and a small electrical appliance such as a radio Initially pay approx $20, can receive interest free credit of $80 to be paid in equal installments over three years

24 EXAMPLES FROM GLOBAL SOUTH Indonesia (Subsidies for electrification) State electricity utility used annual budgetary allocations to fund extensions of service to low-income households. Government-subsidized service available only for the lowest level of service. Utility responsible for installing a load limiter in the affected households, permitted approximately 480 watts of service without requiring households to pay a line extension or connection charge. India (Fuel Subsidy) Subsidized Kerosene and LPG to the domestic consumers sold in small cylinders in India (14.2 kg and 5 Kg). LPG is presently priced at approximately 50% of the total supply cost in major cities such as Delhi Subsidized LPG is generally only available in large towns and cities LPG subsidies misdirected and mistargeted Primarily benefit higher-income households as lion s share of the subsidies are allocated for urban areas

25 SUBSIDIES FOR RURAL ELECTRIFICATION SCHEMES, INDIA Scheme Target under the scheme Subsidy vehicle Amount of central financial assistance RGGVY 100% household electricity access throughout India by 2012 Capital subsidy 90% grant is provided by the Government of India 10% as loan by REC to the state governments VESP 1000 villages to be electrified within the current five-year plan Capital subsidy Operational subsidy for first two years 90% of the total project cost Maximum CFA per household is INR20,000 10% of the total project cost RVE Electrification of villages and hamlets that are not likely to receive grid connectivity Capital subsidy subject to upper limits 90% of total costs of electricity generation systems

26 Targets Tariffs Subsidies Cross- subsidies Financial incentives Rural Electrification funds Technical standards and guidelines

27 CROSS-SUBSIDIES Cross- subsidies are another form of subsidies In many developing countries residential consumers are often cross-subsidized by industrial consumers. Eg India, Thailand, Vietnam Indian Electricity Act 2003 initially had a provision to eliminate cross-subsidies which was later amended recognizing that crosssubsidies cannot be completely eliminated, only gradually reduced over time.

28 SSA countries : A snapshot of Electricity and fuel subsidies Uganda Ethiopia Kenya Ethiopia Uganda Kenya Tanzania Malawi Tanzania Malawi Zambia Zambia Botswana Mozambique Botswana Mozambique S Africa Swaziland S Africa Swaziland Source: IMF, 2013

29 Targets Tariffs Subsidies Cross- subsidies Financial incentives Rural Electrification funds Technical standards and guidelines

30 FINANCIAL INCENTIVES Financial incentives (tax exemptions, duty exemptions etc.) are essential to encourage the transition to clean cooking and lighting Eg India s Accelerated Depreciation for wind energy helped expand the market and encouraged private investment Key elements of financial incentive programmes Funding stability and duration Incentive amount Application process Quality assurance Consumer education and awareness

31 Targets Tariffs Subsidies Cross- subsidies Financial incentives Rural Electrification funds Technical standards and guidelines

32 RURAL ELECTRIFICATION FUNDS Pool of funds dedicated to subsidize rural service esp for grid extension. Calculated as a percentage levy or fixed amount on the electricity bill. Eg Zimbabwe has a rural electrification fund which is funded from 6% levy on electricity sales Cambodia with very low rates of electrification has also established a fund which is funded by the Govt and World Bank. Provide grants to private rural energy enterprises. Tanzania and Uganda have also set up REFs Tanzania s REF is funded Annual Budgetary allocation Contribution from international donor organizations Levies of up to 5% on electricity sales from national Grid Levies of up to 5% on the specific isolated systems including systems for private consumption

33 Targets Tariffs Subsidies Cross- subsidies Financial incentives Rural Electrification funds Technical standards and guidelines

34 TECHNICAL STANDARDS AND GUIDELINES Standards should be purposefully designed for rural contexts as existing regulations for large systems may not be applicable for small decentralized systems Interconnection standards increase the chance of existing assets to continue operation given right regulations To ensure proper system design and installation, compliance to standards may be one of the criteria for fund disbursal

35 GIVEN THE RIGHT POLICIES, HOW DO WE PLAN?

36 INTEGRATED PLANNING FOR ENERGY ACCESS AND HUMAN DEVELOPMENT

37 KEY QUESTION What kind of approaches? Top-down or bottom up or a combination of the two? How can we achieve centralized target setting using bottom up planning and decentralized implementation?

38 WHY IS INTEGRATED PLANNING REQUIRED? Household energy remains a fragmented field with multiple actors, lacking a cohesive strategy Education Strong alignment across policy domains important to accelerate the adoption of cleaner fuels. Rural development P o l i c y Environment Brazil s Northeast Rural Poverty Alleviation Program Energy access Uganda s Energy for Rural Transformation program explicitly features electrification of remote health clinics, schools, and water pumping via solar photovoltaic systems Health C o h e r e n c e Water Agriculture

39 HOW DO WE INTEGRATE PLANNING? Source- UNESCAP, 2003

40 KEY POINTS TO REMEMBER There is no one size fits all solution to policymaking in energy access. Policies for energy access should be designed in line with the sustainability objectives in mind Clear energy access targets should be set by the governments since it is an important benchmark for tracking progress. Lifeline tariffs and subsidies are an important part of energy access policies, however each has its pros and cons. Subsidies and cross-subsidies though having welfare impacts can significantly distort the market if mistargeted Dedicated agency for rural electrification with ring-fenced rural electrification funds is important Energy Access should not be treated as a standlaone sector since it has cross cutting linkages with other development outcomes. Bringing about an integration in policies requires coordinated planning and implementation between different ministries and state departments with clear delineation of roles and responsibilities.

41 GROUP ACTIVITY CASE STUDY Context Country X is a low income developing country with insufficient generating capacity, significant peak and energy shortages, low levels of electricity access (<20%), and a high proportion of people depending on traditional solid fuels. The country has significant potential for solar and micro hydro. The power sector is dominated by the public sector with very limited private participation. The country has committed to the SE4All objective of extending universal energy access by Questions What approach would you propose to take to increase energy access rates? (Grid, off-grid?) What policy instruments and regulatory principles will you adopt given your approach? Why? What implementation challenges do you foresee in translating your policy to action? Present a SWOT analysis

42 GROUP ACTIVITY 2 A low income developing country Y with poor levels of energy access is trying to formulate a Poverty Strategy Reduction Paper and has identified the following key areas to focus on- food security and livelihood generation. As a policymaker how would you define a policy which takes into scalability and social sustainability elements into account? Discuss and elaborate your strategy.

43 GROUP ACTIVITY 3 A low income developing country Y with poor levels of energy access is trying to improve the quality of education which has high dropout rates, low literacy levels and particularly dismal female literacy levels. As a policymaker how would you define a policy which takes into equity and environmental sustainability into account? Discuss and elaborate your strategy.

44 National Energy Policy statements on gender and women in Tanzania Promote gender equality within the energy sub-sector on both the demand and supply side. Facilitate education and training for women in all energy aspects. Promote awareness on gender issues concerning men and women s social roles in the energy sector, including training on appropriate technologies. Promote awareness and advocacy on gender issues in the energy sector. Source: National Energy Policy 2003