Renewable Energy and Mini Grids in East Africa The Technical Challenges and Opportunities for Developers, Investors and Off-Takers AEF June 2017

Transcription

1 Renewable Energy and Mini Grids in East Africa The Technical Challenges and Opportunities for Developers, Investors and Off-Takers AEF June 2017 Copenhagen

2 Context for Mini-Grids - A challenging business Early-stage infrastructure projects are a risky business: Scarce risk capital Limited local development teams Information gaps and asymmetry Constrained host government capacity Corruption and vested interests First mover (dis)advantage positive externalities Disenfranchised local communities 2

3 Context for Mini-Grids InfraCo Africa s mandate InfraCo Africa s mandate: Enabling and not replacing the private sector Transforming markets by being the first Generating new opportunities by powering businesses Stimulating investment by developing attractive deals 3

4 Context for Mini-Grids Some facts for Africa Figure 1: Electrification rates in some of InfraCo Africa focus countries 100% 80% 60% 40% 621 million people are without access to the national grid (32% in SSA) Grid is slow, high cost and impractical Thus, decentralised approach emerging: Government s in Africa looking towards offgrid solutions (e.g. Ghana ECG we want users to consider the National Grid as a back-up solution, not as the main power supplier ) Donors actively promoting (e.g. Energy Africa Access, SE4ALL) 20% 0% Cameroon Cote d'ivoire Ethiopia Malawi Mozambique Tanzania Uganda Zambia Urban Rural Nation-Wide 4

5 Rational for supporting mini-grids InfraCo Africa at the convergence Rational for InfraCo Africa support of mini-grids: Strategic alignment (differentiate ourselves); Highly additional (financial, innovation etc.) High potential development impact Power ladder Cost effective off-grid solution since cost decline in tech After sale quality service Stimulates economic development Challenges and mitigations: Risk of regulation work with regulators Grid arrival retrofit, compensation, site selection Sufficient demand and demand-side management control demand to meet supply; stimulate demand Health and Safety - Work to the highest standards Cost, logistics and need for connection subsidies Leveraging grant funding 5

6 Commercial Model Comparisons and Considerations RVE.SOL generating clear water to increase demand and revenue streams Key model variances: Tariff structure, payment method, demand side management Target market Ownership model Technology choice and design Size of generation unit Key to success for distributed mini-grids: differentiated innovative tariff structures that focus on end users payment ability; Pre-payment system; a strong emphasis on demand stimulation along with ethical control; PowerGen with their PAYG mobile money system controlling capex and opex relative to revenue; relatively small generation capacity but able to scale easily and standardising of units 6

7 Zambia no regulation for Mini-Grids, therefore default to utility scale projects Dive on Regulation 2 countries - Zambia 66 weeks 7

8 Dive on Regulation 2 countries - Tanzania Tanzania an existing and advanced regulation: Tanzania s Electricity Act of 2008 established that Small Power Producers (SPPs) of less than 1MW in capacity would not have to apply for a generation license from the regulator, EWURA a critical step in accelerating development of new projects. In more recent policy documents, this classification has been separated into Small Power Producers of 100kW to 1MW and Very Small Power Producers (VSPP) of 100kW and below. This latest adaptation was a response to the rapid deployment of small diesel generators and solar systems for residential and small business customers, which would otherwise have to register (albeit not apply for a license) with EWURA. All projects under 100kW are exempted from tariff approval, although the regulator does reserve the right to review the VSPP s tariffs if 15% of its customers complain. A critical distinction is made between solar system providers whose customers own their systems versus those whose customers just purchase the electricity they use, as the latter group will have to apply for EWURA licenses once their accumulated customer base exceeds 1MW. 8

9 Link between Regulation and Commerciability African Governments are increasingly aware and implementing appropriate legislation. Countries fall broadly into three categories: 1) those who have developed a full mini-grid framework such as Kenya and Ghana, where they regulate the tariff; 2) those who have developed some specific policies that facilitate the mini-grid market. For example, Tanzania and Nigeria allow projects under 100 kw to be exempted from tariff approvals, and Senegal and Nigeria are using cluster approaches (determining tariff caps by applying the cost-plus approach to groups of mini-grids) and IT platforms to minimise tariff approval costs. 3) the final category are those countries where there is little specific regulation in place, such as Zambia. For these countries, the regulatory process is emerging as a direct response to mini-grid projects engaging with government. In all cases, regulation is a key challenge and can only be mitigated through extensive engagement with the various government/regulation bodies and close collaboration with donor organisations. This represents a similar risk to those when developing a full IPP. Steve Njovu - is a shop owner in Mugurameno. He was the first SMG customer to purchase a fridge. He is now able to sell cold drinks and perishables (e.g. meat) which is proving very profitable. Steve has recently requested provisioning of a second fridge to support the continued growth of his enterprise. 9

10 Link between Regulation and Commercial Viability Risk boxes Broad Regularoty Categories I II III Installed capacity <100kW 100kW-1MW >1MW Licensing requirement Registration only Simple permit License Tariff Tariff level Cost reflective Cost reflective Imposed Time Regulation No Yes Yes Returns set by Investor Regulator Regulator Grid risk Grid retrofit Not g'ted Should be g'ted Likely g'ted Compensation Pre-determined Pre-determined payable Not assessable by regulator by regulator Cost reflective tariffs Imposed tariffs Economically efficient Socio-political driver Willingnenss and Will almost certainly ability to pay require subsidies May not require the Will require regulator's approval regulatory oversight Approach adopted in Approach adopted by Tanzania (varies by Kenya (may be some size) vairation by size) People want electircity more than they want low tariffs! Governments want low tarrifs more than they want people to have power! 10

11 Generating new opportunities by powering businesses - KIS PV plant Gens Battery house Kalangala Infrastructure Services: a pioneering mixed utility company that has responded to the complexity of Bugala Island s needs. KIS:- 1- operates two modern roll-on roll-off ferries; 2- has upgraded the island s 66km Luuku - Mulabana main road; 3- is distributing clean water to 19 villages on the island; 4- and has developed 1.6MW of hybrid solar-diesel power and recently taken over operation of the Kalangala Town Council (KTC) grid. Fully regulated 11

12 Generating new opportunities by powering businesses - Redavia Redavia Tanzania Asset Ltd: an innovative solar PV rental business that provides containerised off-grid power to SMEs and rural utilities. 100kWp of PV plus batteries and/or gensets. InfraCo Africa is providing the capital needed to rapidly scale-up this business with the goal of deploying up to 30 containers across rural Tanzania Fully regulated but because rental, no regulatory requirements 12

13 Generating new opportunities by powering businesses - SMG Standard Migro Grid: an innovative power solution :- 1- that provides Value through Time Based Energy Services 2- that maximizes revenues Via optimal system utilization. 3- that is designed in Africa, for Africa and has been developed to respond to the unique challenges and risks of deploying commercially viable energy assets in rural Africa environments. InfraCo Africa is providing capital to deploy up to 150 systems across rural Zambia Unregulated mini-grid because new in country, therefore default to utility scale regulation 13

14 Generating new opportunities by powering businesses - Virunga Virunga: a rural utility mini hydro based who :- 1-Satisfies rural domestic and productive uses of power 2- Focuses on decentralised generation and production avoiding high transmission costs 3- Involves local communities in all its projects (shareholding) InfraCo Africa is providing capital to develop and construct the 1 st project of a 48MW portfolio in Tanzania Fully regulated with specific mini-grid regulation 14

15 .So InfraCo is trying to explore models Figure 3: Illustrative future of the energy sector (PowerGen image) InfraCo is Positioned as an experienced developer and investor in the mini-grid space, building on KIS and Redavia, with mini-grids representing a differentiated product offering and Unique Sales Proposition (USP) for InfraCo Africa; Having a portfolio of mini-grid investments; Leveraging PIDG/Donor community and donor funding to support the mini-grid regulatory framework. IAfrica leading the way in developing the New Energy Model 15

16 Thank you, Bertrand Belben / bbelben@infracoafrica.com