INNOVATIVE FINANCING OF GRID CONNECTIONS BY ETHIOPIAN ELECTRIC POWER CORPORATION

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1 PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Sawla Injibara Welaita ARBA I Abaya Yirgalem Mesobo WAKANA Wukro &3 INNOVATIVE FINANCING OF GRID CONNECTIONS BY ETHIOPIAN ELECTRIC POWER CORPORATION SHIFERAW TELILA EXECUTIVE OFFICER Ethiopian Electric power Corporation, UEAP 10/13/009 1

2 PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Sawla Injibara Welaita ARBA I Abaya Yirgalem Mesobo WAKANA Wukro &3 TOPICS TO BE DISCUSSED Overview of the Power Sector in Ethiopia The Universal Electricity Access program Delivering better results Nature of the GPOBA intervention Expected benefits Final remarks 10/13/009

3 Injibara I PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Welaita Abaya &3 Overview of Power in Ethiopia Ethiopia is endowed with huge power potential; - hydro 45GW - wind 10GW - Geothermal 5GW etc Currently only about 1.4% of this potential is exploited by the country. 10/13/009 3

4 Injibara I PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Welaita Abaya &3 Overview con d The current installed capacity of the country is about 1503MW( including & GG II Power plants which is currently under commissioning) 550MW is under construction( to be commissioned with in 1-3 yrs Current electricity access is about 3% 1.85 million customers for a population of 73 million. One national, integrated utility - EEPCo 10/13/009 4

5 Universal Electricity Access program ANDA Injibara I PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Welaita Abaya &3 Launched in 005 with objective of increase of electricity access from 17-50% with in 5yrs The program is mainly financed by Ethiopian government and multiple donors like IDA, ADB,BADEA, OPEC, Kuwait fund, Line of credit from Indian Govn t, etc Electrification moving at an impressive pace 10/13/009 5

6 PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Sawla Injibara Welaita ARBA I Abaya Yirgalem Mesobo WAKANA Wukro &3 Delivering better results Despite the fast pace of electrification Connections lag behind last mile missing Cost of connection ranging from US$50 to 100/hh Some can afford, some not GDP=US$500/ hh First year, 0% hh connected, gradually growing at 10% p.a. Some indirectly connected (not fraud), but.. Sub-standard service a few hours per day High cost charged by neighbor (on a per lamp basis) Not metered no lifeline tariffs to the poorest 10/13/009 6

7 Injibara I PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Welaita Abaya &3 Paradox of the last mile People have willingness to pay People have ability to pay vis-à-vis kerosene Initial modest consumption can fit into the lifeline tarrif block (50 kwh per month) Utility spends US$ million upstream Poles and wires are in front of houses But 60% of hh in the dark at the outset How to break this cycle? 10/13/009 7

8 Injibara I PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Welaita Abaya &3 Any solution? Cost of connection seems to be a barrier More so if credit unavailable We are now testing willingness to pay (see cover) Some experiences by EEPCo -5 year loan did accelerate pace of connection But very expensive cost of working capital Any ideas to deal with the problem? Some utility reluctance to use IDA funds Discussions with GPOBA 10/13/009 8

9 Injibara I PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Welaita Abaya &3 GPOBA Engineering (I) EEPCo provides 5 year loans to cover 80% of connection costs customer to pay 0% upfront GPOBA compensates the utility for the cost of working capital assumed 19% p.a. Equivalent to a payment of US$35 for a US$75 connection Paid to EEPCo in two tranches first upon physical connection, second after three billing cycles EEPCo has to deliver CFLs -- connection package Customer repays the loan in 60 installment Amortization and interest rolled into the electricity bill 10/13/009 9

10 Injibara I PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Welaita Abaya &3 GPOBA ENGINEERING (II) EEPCo provides 5 year loans to cover 80% of connection costs customer to pay 0% upfront GPOBA compensates the utility for the cost of working capital assumed 19% p.a. Equivalent to a payment of US$35 for a US$75 connection Paid to EEPCo in two tranches first upon physical connection, second after three billing cycles EEPCo has to deliver CFLs -- connection package Customer repays the loan in 60 installment Amortization and interest rolled into the electricity bill 10/13/009 10

11 Injibara I PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Welaita Abaya &3 Some issues and features Targeting the poor one year lag feature is there a better, simple way? A credible monitoring and verification system Sharing monitoring efforts with other interventions Risk and performance allocation Make it as simple as possible Limited procurement to deal with Therefore, low transaction costs 10/13/009 11

12 PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Sawla Injibara Welaita ARBA I Abaya Yirgalem Mesobo WAKANA Wukro &3 Expected benefits I faster connection Household Connection (%) Year 1 Year Year 3 Year 4 Year 5 Year 6 Year 7 With OBA W/OBA Net /13/009 1

13 PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Sawla Injibara Welaita ARBA I Abaya Yirgalem Mesobo WAKANA Wukro &3 Energy efficiency reduces bill Appliance kw Installed # of Units by 55% % frequency Hours per day Monthly consumption (Wh) % Usage without CFLs With CLFs Savings Lighting % 18.38% 40.95% rch % 0.4% Radio Cassette % 4.04% TV % 16.16% Small Radio % 6.06% % 44.87% 55.13% 10/13/009 13

14 PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Sawla Injibara Welaita ARBA I Abaya Yirgalem Mesobo WAKANA Wukro &3 Win-win for the user and Utility and for lifeline tariff increase Lifeline Tariff Sustainability (Per customer, 15 kwh per month) Without CFLs kwh/month Price/Cost (US$/kWh) Months tal (US$ per year) With Tariff increase (0%) and Cost Increase (10%) Revenues Cost to Serve Service Charge Mark-Up With CFLs Revenues Cost to Serve Service Charge Mark-Up /13/009 14

15 Injibara I PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Welaita Abaya &3 Scaling up GPOBA intervention Currently a revolving fund EEPCo to ring fence proceeds from amortization and interest About US$.7 million per year being recycled be used to finance new connections If business model proves successful, other funds may be injected into this pot to cope with the needs of a higher pace of connections Including IDA funds (performance based), as part of the design of the next EAREP 10/13/009 15

16 PK-1 GEBA 1& Zeit 1& BARO 1& ABA Gedemsa KOKA AWASH II Tullu AWASH III Gobesa Sawla Injibara Welaita ARBA I Abaya Yirgalem Mesobo WAKANA Wukro &3 Final Remarks Scheme about to start Operations Manual being finalized Promising mechanism for the last mile Performance based seems to be a good approach Energy efficiency is a win-win for the customer and utility We are carrying out further surveys to determine Willingness to pay for CFLs and connection Preferred ways to deliver voucher, financing, terms Next intervention possibly funding internal wiring Expectations on sustainability with the revolving fund Model can be replicated in other countries, where cost of last mile is comparable Taking into account specifics of Ethiopia rural is rural towns and villages 10/13/009 16