Transcript Rural Electricity Access

IRADe Energy Conclave 2006
ENERGY & SUSTAINABLE
DEVELOPMENT
Rural Electricity Services:
Institutional Arrangements for
Sustainability
Salman Zaheer
The World Bank
New Delhi
July 28, 2006
Structure of Presentation

Three Major Challenges of Rural
Electrification and how some
countries have addressed them
 High
Cost of Electrification
 Policy & Regulation
 Supervision & Service Quality
India’s approach
 Evolving World Bank Engagement

Rural Electrification
Challenges and Impacts
Challenges
High Cost of Electrification
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Dispersed Load - Low load factor
Low incomes & household demand
Uncertain commercial demand
Policy & Regulation

Socio-political factors vs economic
Impact
Good economics  Risky financials ??
Opportunity for economic & social betterment, but:
 Cost recovery uncertain => Subsidy dependence
 Asymmetrical power of suppliers & consumers
Good economics  Good Politics??

• Farm supply vs income diversification
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Low domestic tariff (often flat rates)
Supply “rationing” as primary
instrument of demand management
High politicization => “strong”
consumers resist metering & tariffs
Supervision & Service Quality

Frontline has limited say in network
design or flexibility to match bulk
supply with demand
Constraint to commercialization - financial viability
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60% labor force in farm-related jobs

Loss-making consumers w/o voice => poor service
Supply decisions get further politicized
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Misreporting of subsidized power supply
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Uncertain Responsibility & Accountability
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Uncertain quality and suitability of rural network
Operator-Builder blame each other for poor O&M
Rural Electrification
Chilean Experience
Challenges
High Cost of
Electrification
Action(s)

Private discoms bid for One time capital subsidy
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Lower tech standards possible - to reduce capital cost
Non-exclusive concessions - to increase competition
Demand driven approach – to enhance financial sustainability
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Policy and
Regulation
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Supervision
and service
quality
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Subsequent operations on commercial basis (no revenue subsidy)
Community participation in project identification
10% of project cost from consumers (wiring/metering/service line)
Household access/consumption
Commercial/industrial off-take
Cost-recovery rural tariff set by regulator = Generation cost +
Distribution margin. Rural tariff higher than urban tariff
Discoms have commercial incentives for access & reliable supply
Local Government (LG) approves & monitors projects
Central Electricity Regulator provides capacity support to LG
Central Electricity Regulator monitors overall program performance
Rural Electrification
Chilean Experience
Results and Lessons
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Coverage: 53% => 76% in 7 years with private financing
Service quality and financial sustainability achieved
Cost of expansion 30% lesser than program estimates
Instilling commercial incentive for improving access and
service was the key feature of the program;
Demand driven nature supports future financial viability
Competition for viable rural businesses kept costs down, reduced
fiscal burden, attracted private financing
Rural Electrification
Bangladesh Experience
Challenges
High Cost of
Electrification
Action(s)
 Rural
Electrification Board sets standards, aggregates design &
construction, facilitates formation of rural electric coops (PBS);
 Lower tech stds allowed
 Concessional long term loans
 Slightly subsidized bulk power / limited revenue subsidy for 5 years
 Demand driven approach supports financial sustainability
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Selection/prioritization of schemes based on economic criteria
PBS responsible for construction supervision, O&M, management
Consumer membership and contribution to project cost
Policy and
Regulation
 Increase
household access and improve social indicators
 Increase commercial activity
 Tariffs - set by REB in consultation with PBS - 40% higher than urban
Supervision
and service
quality
 Coops
governed by community - good quality and commercial stds
 REB reviews performance against Performance Target Agreements
 Employee Bonus & capital funding (expansion) linked to performance
Rural Electrification
Bangladesh Experience
Results and lessons

Since 1980 67 PBSs serving 3.5 million customers established
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Connections increased from 0.7 million in 1992 with over 0.5
million new connections being added now (vs 0.2 m in 1990s)
Sound technical and commercial performance achieved due
to community involvement and despite higher than urban tariff
Other than the larger PBS’, most PBSs operate at a loss and
depend on operating cross-subsidy from REB
In recent years increasing politicization and pressure to
dilute economic criteria
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REB-PBS model needs updating
Growing gap between demand and supply an additional problem
Rural Electrification
Thailand Experience
Challenges
High Cost of
Electrification
Action(s)
 Office
of Rural Electrification (ORE) formed within Provincial
Electricity Authority (PEA) for grid extension, studies and load promotion
 Tech stds set by PEA – construction by ORE
 Concessional long term loans/ slightly subsidized bulk power (crosssubsidy from urban consumers)
 Villages identified in National Plan - PEA:
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Prioritizes villages based on economic/financial returns
Further prioritization based on extent of consumer contribution;
in household access and productive use – extensive
productive use promotion by PEA
 Tariff set by National Government on advice from rate committee in
consultation with PEA. Higher than urban tariff
 Tariff set to cover PEA cost and raise self-financing for investment.
Cross-subsidy from urban/industrial/commercial to rural households
Policy and
Regulation
 Increase
Supervision
and service
quality
 Monitoring
by PEA which in turn is monitored at national level
Rural Electrification
Thailand Experience
Results and lessons
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Access: 10% in 1972 => 80% in 1992; 97% villages electrified
Villages contributed substantially to capital cost (based on
paying capacity) to ensure rapid electrification
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25% villages contributed 30% of project cost, including from
individuals and local development funds
PEA financed a major part of the program through internal
resources (in some years 40 – 70%) and raised commercial
loans for some schemes
Strict use of financial criteria in prioritizing schemes helped make
the program sustainable
Sound technical, commercial and financial performance
achieved
Rural Electrification
Guatemala Experience
Challenges
High Cost of
Electrification
Action(s)
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Policy and
Regulation
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Supervision
and service
quality
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Rural discoms have service obligation within 200mt of existing grid.
Non-exclusive concession for other areas
National regulator sets tech stds – low-cost technology allowed
Output based capital subsidy scheme - $650 paid to discoms for
each eligible household connection – 20% up-front; 80% after
independent verification
Selection of villages for electrification by discoms with Government
encourages financial viability
Increasing household access
Tariff set by national regulator allows recovery of full generation cost
plus a distribution margin set as price cap
Consumer tariff varies according to cost of supply
Consumption <300 kWh per month subsidized through a social tariff
for which discoms get revenue subsidy from Government.
Public-owned company INDE, responsible for electricity supply
outside Guatemala City, responsible for oversight
Independent verification of all aspects of rural program
Rural Electrification
Guatemala Experience
Results and lessons
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122,000 new rural connections made between May
1999 and May 2002
Commercial incentive to serve rural consumer
ensured;
Output based aid helped ensure utility performance
before receiving subsidy;
A criticism against the program has been that subsidy
was made available only to existing discoms thereby
restricting alternate supply providers
Rural Electrification
India : RGGVY
Challenges
High Cost of
Electrification
Action(s)
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Policy and
Regulation
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Supervision
and service
quality
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90% grant for program costs; 100% grant for connecting BPL families
REC as nodal financing agency to channel GoI funds
REC defines program design & implementation parameters
CPSU services available for project formulation and implementation
Enabling provision in National Electricity Act 2003 allows alternate
service providers – Panchayats, User associations, NGOs, franchisees
Increase household access, productive use and social indicators
(modified from earlier limited farm supply focus)
Tariff setting by SERCs – may be deregulated for off-grid composite
generation & supply systems
Responsibility for financial sustainability - through tariff & revenue
subsidy as required - remains with SERCs
Overall supervision by REC (reporting to MoP, GoI)
Distribution licensee responsible for quality of service
Act provides for District Committees to clear projects & monitor
quality of supply/service
Rural Electrification
India: Challenges ahead
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Aggressive connection targets
 100% households by 2012 => creates supply-side pressure
Uncertain financial sustainability
 Limited consumer mobilization or participation
 Tariff rationalization during program implementation
 Slow pace of franchisee development
Regulation, Monitoring & Evaluation – procedures/entities not in place
 Limitations of heavy-handed “cost plus” regulation
 High potential for mis-targeted and “leaked” subsidies
 Link program to broad rural development outcomes – farm & nonfarm incomes; health services & education
Capacity building at all levels – local government, village level, and
district committees
Overall power scarcity - Bold political leadership to balance sector’s
economic & social objectives for long-term sustainability
RE Challenge - Transitioning from
vicious cycle, where customer is a
liability…….
• Supply rationing
• Inadequate O&M
• Poor supply & service quality
• Rising Incentive for theft & collusion
• More electricity
needed to meet
increasing demand
BUT…
• Low cost recovery
• Declining ability to
contract new power
FURTHER DETERIORATION IN:
• Tariff collection
• Financial condition
• Ability to contract additional
power
……to a virtuous cycle, where customers
progressively become assets…….
• At least selfsustaining O&M
costs recovered
from customers
• Mechanisms for selfregulation –
benchmarking, etc.
• Enhanced prospects for attracting
credible service providers/franchisees
• Assured supply to full cost paying
customers
• Rationing for subsidized customers or
mechanisms for targeted subsidies
• Increased economic activity, employment
& local incomes
• Increased prospects for
contracting additional power
from grid and local sources
• Maintain service quality and
financial viability
World Bank Program being
identified…selective & strategic
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State-level power reform – key bottleneck in sustainable
sector development
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Rural energy services – for inclusive growth
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Village Energy Security Program - cooking & lighting options
Distributed Generation to improve “last mile” electricity services
Power Transmission System Development
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Capacity building for governance & regulatory effectiveness
Link power generation (including clean hydro) with load centers
Promote competition - attract investment into generation
Generation expansion and emission reduction
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1,500 MW of hydropower (out of plan 16,000 MW) and 1,000
MW of thermal plant R&M (out of potential 20,000 MW)
Strengthen institutional capacity and show case good practices
THANK YOU!