An Implementation Guide for Regulators and Policymakers Presented by Bernard Tenenbaum and Chris Greacen USAID E3 Energy Division Seminar Washington, DC—March

An Implementation Guide for Regulators and Policymakers Presented by Bernard Tenenbaum and Chris Greacen USAID E3 Energy Division Seminar Washington, DCMarch 10, 2014 Co-authored with Tilak Siyambalpitya and James Knuckles Available for free downloading at http://bit.ly/OKR_fromthebottomuphttp://bit.ly/OKR_fromthebottom From the Bottom Up: How Small Power Producers and Mini-Grids Can Deliver Electrification and Renewable Energy in Africa*

We need megawatts, not megawords. ~Zambian Government Official, 2010 2

Outline Electrification: The Centralized vs. Decentralized Approaches SPPs/Mini-Grids and Regulatory Overview What is an SPP? 4 Types of SPPs and Overlap with Mini-Grids Regulation 3 Types of Regulatory Decisions Key Regulatory Issues Retail Tariff Setting To Regulate or Deregulate? Selling To and Buying From the Main Grid (Feed-In & Backup Tariffs) When the Big Grid Connects to a Little Grid The Case of Tanzania 3

The books focus is on regulation. But regulation is only one piece of the puzzle! Tanzanias program 1. SPP regulatory framework developed by EWURA More complete than anywhere else in Africa. Goal: Light-handed regulation Process as well as prices. (Kenya versus Tanzania) 2. Grants from donors through REA or directly to M-Gs Connection grants (US $500 per new connection for mini-grids) Grants for feasibility studies (business plans and environmental assessments) 3. Availability of financing (equity, loans from local commercial banks supported by a US $25 million WB line of credit, risk guarantees) 4. Technical assistance for developers, the REA and the electricity regulator (side-by-side assistance not reports) 4

Electrification: Centralized vs. Decentralized Tracks Two Tracks of Electrification Decentralized Track Centralized Track Centralized Track Solar Lanterns Solar Home Systems Mini-Grids & SPPs Grid Extension Main or Regional Micro- Grids ?

ATTRIBUTESTier-0Tier-1Tier-2Tier-3Tier-4Tier-5 Peak Available Capacity (W eq ) ->1>20>200>2000 Duration (Hrs)-4 81622 Evening Supply (Hrs) -2 4 Formality (Legality) --- Quality (Voltage)--- Appliances and services Task Lighting AND Phone Charging General Lighting AND Television AND Fan Tier-2 AND any low-power appliances Tier-3 AND any medium-power appliances Tier-4 AND any high-power appliances Possible electricity supply technologies Dry Cell (DC) Solar Lantern (DC) Recharg. Batteries (DC) Solar Lantern (DC) Recharg. Batteries (DC) SHS (DC) SHS (DC or AC) Micro-grid (DC or AC) Mini-Grid(AC) Grid (AC) Mini-Grid(AC) Grid (AC) 6 Levels of electrificationit is not all or nothing!

Micro-grid vs. Mini-grid

What is a Small Power Producer (SPP)? Small independently operated electricity generator (private, coop or community owned) Supplies and usually operates an isolated mini-grid or sells to a utility on the main grid or to an existing utility-owned isolated grid Usually defined by regulators according to size, fuel and technology (10MW or less?). Should include hybrid generators! AKA distributed generation (US and Europe) or decentralized generation or decentralized distributed generation (India) or mini-grids (worldwide) or mini-utilities (IFC 2012) 8

9 4 Types of SPPs / Mini-Grids Location of Generation Connected to Isolated Mini- grid Connected to Main Grid Nature of Customers Selling Retail to End Customer Case 1 SPP + M-G Case 3 SPP + M-G Selling Wholesale to Utility Case 2 SPP Case 4 SPP

Case 1 SPP selling at retail on an isolated mini-grid Small generator connected to a few kms of distribution selling to village customers. Best with an anchor customer. Electrificationdirect. Cambodia (198, diesel, private), Mali (150, currently diesel, private, sell to about 15% of rural population) and Sri Lanka (250+, micro-hydro, coops). Case 4Grid-connected SPP selling at wholesale to national utility A pure SPP (just a generator, not a mini-grid). No retail customers. Sells under a feed-in tariff(FIT). Sri Lanka (100+, mini-hydro, private), Thailand (264, mostly biomass, private), Tanzania (3, mini-hydro or biomass, private). Electrificationindirect or none. I dont want the headaches of selling to poor households. Case ???Small power distributors (SPDs) Buy at wholesale and resell at retail. No generation. Nepal (community), Cambodia (private), India (private franchisees?) and Bangladesh (coops). Africa-??? How promoted? Option 1-bottom up project-by-project (Tanzania). Option 2- top- down promoted concessions (geographic and local) (Senegal & Mali). 10 4 Types of SPPs (continued)

Regulation The less we have to do with government, the happier we are. ~ Indian micropower developer, November 2012 Regulation can provide a fertile ground. But regulation does not make a market. ~ IFC Official, World Bank Group Workshop, January 30, 2012 11

3 Types of Regulatory Decisions 12 Economic Technical Process Retail Tariffs (Cases 1 and 3) Cost of Interconnection (Cases 2 and 4) Feed-in Tariffs (Cases 2 and 4) Price of Backup Power (Case 4) Safety of Connections Voltage and Frequency Standards Relay Requirements for Different Generators Stakeholder Consultation Requirements Negotiated vs Standardized PPAs? Provisional License: Exclusive? How Long? Milestones?

Four Key Issues for Regulators 1.Retail Tariff Setting 2.To Regulate or Deregulate Small Isolated SPPs? 3.Selling To and Buying From The Main Grid (Feed-In and Backup Tariffs) 4.When the Big Grid Connects to a Little Grid 13

The Case of Tanzania

Good NewsBad News SPP program works TANESCO is insolvent 15

300 kW remote mini-grid 300 kW remote mini-grid Target 1400 customers Target 1400 customers Mawengi village, Njombe, Tanzania Mawengi village, Njombe, Tanzania LUMAMA hydropower project 16

300 kW remote mini-grid 300 kW remote mini-grid Target 1400 customers Target 1400 customers Mawengi village, Njombe, Tanzania Mawengi village, Njombe, Tanzania LUMAMA hydropower project Mini-gridMain grid RetailCase 1Case 3 Wholesale to utility Case 2Case 4 17

Mwenga 4 MW hydro 800 households in 15 villages (expanding to 4000) & sells to the grid 18

Isolated mini-grid Main grid wholesale to utility Case 1Case 3 retailCase 2Case 4 19 Mwenga 4 MW hydro 800 households in 15 villages (expanding to 4000) & sells to the grid

TPC, Moshi 17.5 MW selling 3-4 MW to main grid Cogeneration Sugarcane bagasse 20

TPC, Moshi 17.5 MW selling 3-4 MW to main grid Cogeneration Sugarcane bagasse 21 Mini-gridMain grid RetailCase 1Case 3 Wholesale to utility Case 2Case 4

Regulatory & Commercial Framework Documents http://www.ewura.go.tz/sppselectricity.html http://www.ewura.go.tz/sppselectricity.html Main gridIsolated Mini-grid (off-grid) Standardized PPA* Standardized Power Purchase Agreement for Purchase of Grid- Connected Capacity and Associated Electric Energy Between Buyer and a Small Power Project Standardized Power Purchase Agreement for Purchase of Off-Grid Capacity and Associated Electric Energy Between Buyer and a Small Power Project Tariff methodology* (Feed-in Tariffs) Standardized Tariff Methodology for the sale of Electricity to the Main Grid Under the Standardized Small Power Purchase Agreements. Standardized Tariff Methodology for the Sale of Electricity to the Mini-grids Under the Standardized Small Power Purchase Agreements Process Guidelines (roadmap) Guidelines for Developers of Small Power Projects (SPP) ; Includes standardized forms Process rulesRules for Developers of Small Power Projects (SPP) Interconnection Guidelines* Guidelines for Grid Interconnection of Small Power Projects (Parts A, B, C) Interconnection Rules* Rules for Grid Interconnection of Small Power Projects (Not yet provided) Annual Tariff Calculations * (Feed-in-Tariffs) Detailed Tariff Calculations under the SPPA for the Main Grid for each year Detailed Tariff Calculations under the SPPA for the Mini-grids for each year 22 * Applies to cases 2 and 4 only.

Key Features of SPP framework (cases 2 and 4) 23 Small Power Purchase Agreement (SPPA) Buyer must take SPPs output if SPP is connected to the main grid Term 15 years (expanding now to 25?) SPPA type depends on context: (1) selling to an existing isolated mini-grid; (2) selling to main grid Isolated SPPA switches to Main grid SPPA upon interconnection with main grid Concern by some investors / developers: too simple to get international finance (?) Standardized Feed In Tariff (FIT) Methodology Avoided Costs of the Utility (possible switchover to technology specific FITs?) Local Currency Denomination Reflect Seasonality (Main Grid) Floor and Cap Prices Technology Neutral

Annual Feed-in-Tariff Levels (Calculated by EWURA for SPP wholesale sales) 20092010201120122013 MAIN GRID TZS/kWh 96110121152.54174.89 Mid Yr Rate (TZS/$)13221394159815871630.5 US$/kWh $0.073$0.079 $0.076$0.096$0.107 ISOLATED MINI-GRIDS TZS/kWh334.8369380480.50490.5 US$/kWh $0.253 $0.265$0.238$0.303$0.301 24

SPPs in Operation (tiny.cc/SPPstats) ProjectMWType of Resource Grid typeStatus ACRA - LUMAMA 0.3HydroNew isolated mini(Case 4) In operation / community based TANWAT2.34Biomass wood Main (Case 1)In operation. Selling 1 MW (2010) TPC Co- Generation 17Biomass -- Bagasse Main (Case 1)In operation. Contracted to Sell up to 9 MW to TANESCO Mwenga Mufindi Tea 4HydroCases 1 & 3 In operation Ngombeni1.5Biomass coconut wood Existing mini (case 2) In operation. 25

SPPs with signed PPAs (tiny.cc/SPPstats) ProjectMW export ResourceGrid typeExpected COD Symbion KMRI Tunduru 0.3BiomassTANESCO isolated July 2014 Symbion KMRI Kigoma 3.3BiomassTANESCO isolated Dec 2014 St. Agnes Chipole Songea 7.5HydroTANESCO isolated Jan 2015 NextGen Solawazi2.0PVTANESCO isolated Jan 2015 Andoya Hydro Electric Co. 1.0HydroTANESCO Isolated Feb 2015 EA Power Tukuyu10HydroTANESCO main Feb 2015 Darakuta Hydro0.24HydroTANESCO main Nov 2015 Mapembasi Hydro10HydroTANESCO main 26

Promoting Mini- and Micro-Grids Regulatory Actions Proposed in Tanzania Key regulatory issue Tanzania proposed regulatory action 1Retail Tariff Setting Do not mandate that the operator must charge the same tariff as the national utility. Allow operators to cross-subsidize between customer classes Allow operators to sign power sales contracts with customers above a specified kW without requiring prior regulatory approval. Allow operators to make loans to potential and actual customers to connect and to buy appliances and machinery. 2To Regulate or Deregulate Small Isolated SPPs? Exempt small system operators (less than 100 kW) from licensing and prior tariff approvals.

Promoting Mini- and Micro-Grids Regulatory Actions Proposed in Tanzania Key regulatory concern Tanzania proposed regulatory action 3Selling To and Buying From The Main Grid (Feed-In and Backup Tariffs) No peak power component to backup power tariffs if load factor