WEST, CENTRAL AFRICA SREC Climate Change Strategic Priorities:

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WEST, CENTRAL AFRICA SREC Climate Change
Strategic Priorities

• Electricity Sector Reform and GEF Climate Change
  Focal Area Strategic Priorities Business Case
  for UNDP-GEF
• Improving Access Rate and Running Electricity
  Delivery Services to the Rural Poor
• Mathieu-C. KOUMOIN
• Regional Coordinator, UNDP-GEF
• Bamako, June 21-25, 2004

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OVERVIEW OF PROJECTS
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Outline of the Presentation

• 1. Overview of Key Regulation Concepts
• 2. Power Markets in UNDP LDC Countries and
  Linkage with SP3
• 3. Case Examples Outside Africa
• 4. Where Do We Go From Here ?

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Overview of Key Concepts (1)

• Electricity Sector Reform is about
  change/amendment of laws and enactment of new
  legislation governing the sector (constitutional
  debate)
• Restructuring of the Industry means unbundling
  production from transportation and at times
  distribution (various models)
• Privatization means actual transfer of company
  assets and/or property rights from Public to
  Private (change in ownership structure)

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Overview of Key Concepts (2)

• Unbundling means isolation of monopoly parts
• Vertical Integration means the same publicly
  owned utility is responsible for generating,
  transmitting and distributing to retail consumers
• Network Industries includes Power, Telecom, Water
  and Sanitation (initially perceived as natural
  monopolies)once you invest in Power you cannot
  move the asset and it is not a switched Network
  Industry)
• Sector Liberalization is often a process of
  gradual private sector participation in 2
  strategic phases (1) Sector restructuring with
  all due diligence (legal, technical,
  institutional) (2) Executing the transaction
  once the necessary conditions have been met

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Overview of Key Concepts (3)

• Concession Versus Outright Divesture Power
  Infrastructure is conceded to a Private Investor
  and the government takes it back after (say) 20
  years to sell it to its own people
• Assumptions are that (1) the private sector is
  not prepared to take foolish risk (2) everybody
  is concerned about underbidding and renegotiation
  of contracts

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Overview of Key Concepts (4)

• De-Regulation designates all transitional
  arrangements to support the shift from a publicly
  owned Regulated Utility to a Market-based,
  competitive environment.
• Stranded Cost Difference between a book value
  (expected revenues under regulation) of an asset
  and its market value under competition e.g
  (power plants after opening-up of production to
  IPPs)
• IPP Independent Power Producer
• ISO Independent System/Transmission Operator

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Overview of Key Concepts (5)

• Introduce competition

• Incentives for greater efficiency

• Industry
• Re-structuring

Private sector Participation

• Increase transparency

• New sources of finance (FDI)

• Mobilize finance

• Power sector Reform

• Protect Consumer interest

Regulation

• Increase efficiency

• Industry viability

• Protect Industry Interest

Cost-Reflective Pricing
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Overview of Key Concepts (6)
Organizational Chart of Electricity Sector
Regulatory Commissions
Chairman
Appeals Board 5
Commissioner
Commissioner
Commissioner
Commissioner
Hearing Panel 5
Director General
Liaison with Coalition Forces, International
Department
Tariff Department
Consumer Department
Administration Department
Operations Department
Market Structure Department
Initial Chair, two Commissioners, the Director
General and the Inspector General are Senior
Appointees from the Government.
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Overview of Key Concepts (7)Regulation Balance
between Competing Interests
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Overview of Key Concepts (8)Operation of ERCs
Regulations
Discovery
Preparation of Case
Determination of Need
Filing
Start here
Rate Increase or Refunds
Monitoring
Settlement Discussions
Rulings
Hearings and / or Settlement
Further evidence requested
Hearings
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Overview of Key Concepts (9)Re-structuring Models

• Model 1 Vertical Integration with IPPs
• Model 2 Partial Unbundling
• Model 3 Semi-competitive model
• Model 4 Full Retail competition

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Overview of Key Concepts (10)Re-structuring
Models

• Model 1 Vertical Integration with IPPs

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Overview of Key Concepts (11)Re-structuring
Models

• Model 2 Partial Unbundling

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Overview of Key Concepts (12)Re-structuring
Models

• Model 3 Semi-competitive model

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POWER Markets and Linkage with SP3 in UNDP
Countries (1) Industry structure
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POWER Markets and Linkage with SP3 in UNDP
Countries (2) Structure of Electricity Demand

• Urban segment High population density
  mid-relatively intermediate/high levels of income
• Peri-Urban Segment High Population Density with
  low levels of income
• Rural segment Scattered low population density
  and very low levels of income

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POWER Markets and Linkage with SP3 in UNDP
Countries (3) Rural Access figures !
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POWER Markets and Linkage with SP3 in UNDP
Countries (4) Current Status of Power
Infrastructure Generation Issues Challenges

• Several Decades of Marginal Investments
• Minimalist OM practices
• Few spares inadequate warehouse tracking
• Engineering technical ingenuity
• Have kept system running under arduous conditions
• Would benefit from training on modern systems
• Integrated Resource Planning will remain an issue

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POWER Markets and Linkage with SP3 in UNDP
Countries (5) Current Status of Power
Infrastructure Transmission Distribution

• Transmission
• Age of system
• Capacity to meet load
• Maintenance of system
• Poor repairs
• Lack of cleaning Flash-overs

• Distribution
• Illegal tie-ins
• Making load shedding ineffective
• Overloading system
• Transformer failures
• Poor maintenance
• Failures during rains

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POWER Markets and Linkage with SP3 in UNDP
Countries (6) Current Status of Power
Infrastructure Transmission Distribution

• Condition of system
• Illegal tie-ins
• Render load-shedding at low voltage ineffective
• Capacity of system to meet load
• Essential Services
• Industrial 1st priority
• Residential once minimum industrial
• need is met (provide jobs 1st)
• Maintenance capability
• Lack of equipment training
• Metering
• Many broken, located inside homes etc

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POWER Markets and Linkage with SP3 in UNDP
Countries (7) Current Status of Power
Infrastructure Efforts underway to address Issues

• Peri-urban Most governments are bundling
  peri-urban access with concession contracts
• Gabon is a good example
• Critical issue efficiency of management of
  utility and ownership structure (national versus
  foreign)
• Rural Market Creation of Rural Electrification
  Agencies in SSA Renewable Energy Agencies in
  Maghreb Countries

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POWER Markets and Linkage with SP3 in UNDP
Countries (8) Possible Service lines under SP3
Red Flags for SSA

• Importance of the nuance between
• Renewable Energy Agencies (Maghreb) and,
• Rural Electrification Agencies
• UNDP-GEF Services at the Wholesale Market Design
  Level
• On grid-renewables
• Structuring of PBSS
• TA in Wind Atlas
• Integration of local industries etc

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POWER Markets and Linkage with SP3 in UNDP
Countries (9) Possible Service lines under SP3
Proposed Operational and Sector Work (1)

• UNDP-GEF Service lines at the Wholesale and
  Retail Market Design
• structuring smart subsidies for on-grid
  renewables
• structuring subsidies to elicit local market
  for decentralised applications (renewables,
  efficiencies)
• universal rural access, e.g. improvement in
  regulatory frameworks, incentives to private
  sector, cap. building and tech. assistance to
  reg. Agencies
• elimination of cross-subsidies (tariffs at
  utility/agency level)
• introduction of market-based mechanisms in
  power, e.g. renewable portfolio standards (RPS)

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POWER Markets and Linkage with SP3 in UNDP
Countries (9) Possible Service lines under SP3
Proposed Operational and Sector Work (2)

• UNDP-GEF Service lines at the Retail Market
  Design
• support for systemic improvements for electricity
  accounting and controls in deregulation
• setting up of renewable energy and energy
  efficiency funds
• UNDP-GEF Service lines at the National/Policy
  formulation level, institutional, legislative and
  regulatory levels

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POWER Markets and Linkage with SP3 in UNDP
Countries (10) Possible Service lines under SP3
Proposed Analytical Work and Capacity Building

• UNDP-GEF Service lines at the Regional Level
• Raise awareness on need to extend power coverage
  to the rural poor on a self-sustaining commercial
  basis
• Share knowledge and experiences/select future
  strategic priorities
• Build coalition among stakeholders
• Develop country specific strategies/review
  progress
• UNDP-GEF Service lines at the National/Country
  level
• Disseminate regional and international knowledge
• Launch a dialogue/develop strategies
• Build coalitions

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Case Examples in Sub-Saharan Africa

• Mali
• Burkina
• Mauritania
• Regional Micro-Hydro 1 and 2

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Where Do We Go from Here ?

• SP3 Tool-kit by September 2004
• Expedite Regional Micro-hydro 1 and 2
• Meeting with the Mali OIC to kick off the First
  Regional Micro-hydro Project