RES4AFRICA PROGRAM LAUNCH · 2019-09-25 · geothermal in the Kenya’s energy matrix. Potential evolution According to the KenGen (Kenya Electricity Generating Company), the country

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RES4AFRICAPROGRAMLAUNCH-NairobiOctober26th-27th,2016

ContentsPositionPaper1-Demand-supplycoordinationinSub-SaharanAfrican

electricitysectordevelopment

PositionPaper2-De-riskingRenewableEnergyInvestments-Lessonstolearn,stepstotake

PositionPaper3-UnleashingthepowerofhumancapitalforeffectivedeploymentofRESinEastAfrica

Fact Sheet 1 - Performance and Impact Evaluation - An integratedframeworkforenergyprojects

Position Paper 4 - Integration of Renewable Energy in the electricitygrid

Fact Sheet 2 - Environmental, Social and Governance in RenewableEnergyProjectsinEastAfrica

PositionPaper5-RegulatorystudyforMinigridsystemdevelopmentsintheEasternAfrica

PositionPaper6-ScalingupRenewableEnergyinSub-SaharanAfrica

BarriersandRecommendations

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Demand-supplycoordinationinSub-SaharanAfricanelectricitysectordevelopment

PaoloMarino,Poyry,PaoloGarbellini,Poyry,LorenzoFacco,D'Appolonia,AlfredoHott,EGP,ChiaraAquino,ERM,SaraBombardieri,Italgen

Abstract

Currently EasternAfrican countries average electrification rate is slightly above 20%,due to the lack of urbanization infrastructure and low level of GDP per capita ofresidents in rural areas, representing around 70% of total population. On the supplyside generation capacity experienced a significant increase over recent years and hasambitiousfuturegrowthtargets.Inordertoavoidtheriskofoversupply,newdemandshouldbeproperlystimulatedandappropriatelycoordinatedwiththesupplyevolution.Themost promising solutions to achieve these goals could be related to the efficientelectrificationofruraland isolatedareas throughoff-gridrenewablesolutionsandthedevelopmentof the agro-food chainpotential. Strengthening regional cooperationandpower trades amongEasternAfrican countries could also havepositive effects on theefficiencyoftheelectricitysector.Thiscoordinatedapproachcould leadtosustainabledemandgrowthforthenextdecade,closeto10%peryearonaverage.

Marketcontext

Kenyan generation mix is dominated byhydroelectric power, geothermal andthermal generation 1 . Other renewables,like wind and solar, still represent anegligibleshareof the total capacity (lessthan2%).

1Mainlydieselandkerosene

2015InstalledCapacityMix(MW)

Source: KPLC Annual Report and FinancialStatement,2015

Thermal35.99%

Cogeneration1.13%

Solar0.02%Wind

1.13%

Hydro35.70%

Geothermal26.02%

2015 Installed Capacity mix

Thispaperhasbeenpreparedby

incollaborationwith

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As of June 2015 Kenya’s total installedgeneration capacity reached 2,299 MW,with414MWofnewgeneration capacityaddedfromthepreviousyear.Geothermalexperienced the highest annual growthrate with 235 MW added over last year.Almost the entire growth in geothermalcapacity is attributable to the Olkariaexpansion, theworld’s largestgeothermalpowerplant.

Source: KPLC Annual Report and FinancialStatement,2014and2015

Intermsofenergygeneration,thepictureis slightly different, due to the CapacityFactor of geothermal plant that is higherthan70%.

2015InstalledGenerationMix(GWh)


It confirms the predominant role ofgeothermalintheKenya’senergymatrix.

Potentialevolution

According to the KenGen (KenyaElectricity Generating Company), thecountry aims at increasing geothermalcapacity by another 460MW by 2018 toreduce the weight of hydro-power in itsmix in order to decrease the exposure ofKenya’s electricity consumers to theconsequencesofdroughtwhichresults inpower supply reduction from hydropowerplants forcing thecountry todrawenergy from the costly thermal powerplants.

In 2013, the Government launched the5,000+ MW plan, with the ambitioustarget of addingmore than 5,000MW ofnew capacity to the national grid by theend of 2016. Main objectives of the planwere to reduce the country’s electricitygeneration cost, trigger industrial growthand increase electrification. In order toachieve these goals, the new capacitywould be mainly developed fromgeothermal (additional 1,650 MW), wind(additional 630 MW) and fossil fuelsavailable in the country (coal with 1,920MW and natural gas with around 1,250MW). At the end of 2015, around 600additionalMWhavebeenaddedinstalled,making geothermal power the mainelectricitysourceofthecountry.

The expansion target2(with the additionof1,000MWofnuclearcapacity3by2025)isexpectedtobepostponedbetween2017and2019, but the government is keepingthetargettoreducetotal imports(mainlyfromUganda).

2Publishedinthesecondmediumtermplan2013-20173In2015KenyasignedadealwithChinaforthedevelopmentofskillsandtechnicalsupportfornuclearenergywhilein2016KenyasignedaMemorandumofUnderstandingwithbothRussiaandKoreatoidentifynuclearprojects

Installed capacity [MW] 2015 2014 Added

capacity

Thermal 827.4 671.5 +155.9Hydro 820.7 817.8 +2.9Geothermal 598.2 363.0 +235.2Wind 26.0 5.9 +20.1Cogeneration 25.9 25.9 ~Solar 0.5 0.7 --0,1TOTAL 2,299 1,885 414.1

Generation [GWh] 2015 2014 Added

capacity

Geothermal 4,059 2,007 +2,052Hydro 3,310 3,945 -634Thermal 1,778 2,726 -948Import 79 87 -8Wind 38 5.9 +20.1Cogeneration 14 57 -43Solar 1 1 ~TOTAL 9,279 8,840 +439

Thermal19.16%

Cogeneration0.15%

Solar0.01%Wind0.41%

Import0.85%

Hydro35.67%

Geothermal43.75%

2015 Generation mix

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Asnapshotofelectricitydemand

Electricitydemandhasalmostdoubled inthelasttenyears(5%CAGR),reachinganall-time high of 9.28 TWh in 2015.


Theincreasedcustomerbasehasbeenthemaindriverbehindtheelectricitydemandgrowth, with total customer connectionsreaching 3,611,904 at the end of June2015 (843,899 new customers connectedto the grid in 2015 - +90% compared to2014).


Currently industrial demand accounts formore thanahalfofKenya’s totaldemandand experienced the highest annualgrowth rate with additional 200 GWh in2015. Residential demand accounts for

approximatelyonefourthoftotaldemandin 2015 and is expected to grow evenfurtherintheupcomingyears.


The economic upturn, with an averageannualGDPgrowthrateof+5.6%overthe2010-2015 periods, is the main driverbehindthegrowthinindustrialelectricitydemand.


Inthe future, inadditiontothegrowth incustomerbasethankstotheelectrificationplan, major expected demand driversinclude the creation of industrial parks,the LAPPSET projects4, resort cities, ironand steel smelting industry, the standard

4LamuPortSouthernSudan-EthiopiaTransport(LAPPSET)it’sanewtransportcorridorprojectwiththeaimofstrengtheningKenya’sregionalHubstatusinEasternAfrica.Theprojectenvisagestheconstructionofport,railway,highways,airportsandoilpipelineconnectingKenyawithEthiopiaandSouthSudan.

5.76.2 6.4 6.5 6.7

7.3 7.7 8.18.8 9.3

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Ann

ual e

lect

ricity

dem

and

[TW

h] Historical demand evolution

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Mill

ions

Number of customers

Residential26.32% Street lighting

0.49%

Other0.21%

Small Commercial

16.12%

Industrial56.85%

Electricity demand by sector

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Dem

nad

by s

ecto

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Wh]

Sectorial demand evolution

Industrial Residential Small Commercial Street lighting Other

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gauge railway and the light rail and thestreetslightingprogram.

Structureoftheenergysector

In order to improve the institutional andlegal frameworkof the energy sector, theKenyan Government has introduced anumber of strategic policies and somefundamental liberalization reforms in theenergy sector. In 2006 the Energy Actconsolidated all laws relating to theenergy sector and provided for theestablishment of the ERC (EnergyRegulatoryCommission)asasinglesectorregulator.

TheGovernmentisfocusedoncontinuousinstitutional reforms in the energy field,including a strong regulatory framework,encouraging private power generatorsand unbundling generation fromdistribution. Renewable Energy Sources(RES) are encouraged, as well as theconnection of Kenya to energy-surpluscountriesintheregion.

The MoEP (Ministry of Energy andPetroleum) is inchargeofpoliciessettingthestrategicdirectionoftheenergysectorandprovidingalongtermvision.

TheERC is responsible for the regulationof the energy sector, tariff setting andmonitoring, coordination of thedevelopmentofenergyplants,monitoringandenforcementofsectorregulation.

The KenGen is the main player inelectricity generation with a currentcombinedinstalledcapacityof1,337MW5fromhydro,thermal,geothermalandwindtechnologies.

Currently there are also 12 activeIndependent Power Producers (IPPs). Allthese players together account for aboutone fourth of the country’s total installedcapacity. Further IPP generation projects

5http://www.kengen.co.ke/

are under development and expected tostartoperationinthemediumterm.

KPLC (Kenya Power and LightingCompany)ownsandoperatesmostoftheelectricity transmission and distributionsystem in the country and sell electricitytoalmost4millioncustomers.Itistheoff-taker in thepowermarket,buyingpowerfromallpowergeneratorson thebasisofnegotiated power purchase agreements(PPA).

KETRACO(KenyaElectricityTransmissionCompany) is 100% Government ownedestablished to develop new high voltageelectricity transmission infrastructurethat will form the backbone of theNational Transmission Grid, in line withKenya Vision 2030 6 . The mandate ofKETRACO is to plan, design, build andmaintainelectricitytransmissionlinesandassociated substations. The creation ofnew transmission lines will facilitate theevolutionofanopen-access-systeminthecountry.

GDC(GeothermalDevelopmentCompany)is 100% state-owned, established byGovernmentofKenyain2008asaSpecialPurpose Vehicle (SPV) to fast track thedevelopment of geothermal resources inthecountry.

RuralElectrificationAuthority(REA)7wasestablished following the Energy Act inorder to develop and update the ruralelectrification master plan, promote theuseofRESandmanagethetenderingandaward of contracts for licenses andpermitsforruralelectrification.

6http://www.ketraco.co.ke/7TransformedintoRuralElectrificationandRenewableEnergyCorporation(RERC)

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StructureoftheElectricityMarket

RenewableplansinKenya

Currently the Renewable Energy (RE)sector inKenya is among themost activein Africa and is one of the six pilotcountriesselectedtobenefitfromScaling-Up Renewable Energy Program (SREP).The SREP program will support Kenya'sinitiatives towards achieving atransformationalchangethatwillleadthecountry towards a low greenhouse gasemission development pathway byharnessing the abundant renewableenergyresourcesinthecountry.

Windpower

Windpower inKenyacontributesonly toa small amountof the country's electricalpower.Onlyasmallnumberofrenewableprojects have been approved under theFeed-inTariff(FiT)scheme8.However, its

8KinangopWindFarm(60MW),KipetoWind(100MW),Kwale SugarMill (18MW) and several small projects intherangeof0.5-2.0MW.In2011aPPA(PowerPurchaseAgreement)wasdirectlynegotiatedwiththegovernmentasanunsolicitedbidwiththeLakeTurkanaWindProject(LTWP).

share in energy production is increasing.Kenyaaimstogenerate2,036MWofwindpower, or 9% of the country's totalcapacity,by20309.

Hydropower

Between 2011 and 2014, KenGen added53MWofnewandupgradedhydropowercapacity, The MoEP has indicated itsintent to financeprefeasibility studies fortheidentificationofpotentialhydropowersites and 290 MW of new hydropowerprojects have been identified as public-privatepartnerships(PPPs).

GeothermalDevelopment

TheGDC,wasgivenallminingrightsinthecountrywith the task of handle themostriskypartofgeothermalactivity (namely,exploration, appraisal and productiondrilling) and thereby remove much risk

9Plans for new wind installations, including feasibilitystudyfora150MWwindfarm,MarsabitWind,andthe50MWIsioloareunderway(KenGen2014).

Generators Market Transmission Distribution Clients

KENGEN

IPPS

RIA

Consumers(households,industries)

KPLC

RuralPrimarySchools

KETRACO

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from project development. The GDC andgeothermal activities in Kenya have beensupported by a diverse array ofmultilateral, bilateral and regionaldevelopmentpartners.

SolarEnergy

A vibrant solar energy market hasdeveloped in Kenya over the years forproviding electricity to homes andinstitutionsremotefromthenationalgrid(off-grid solutions) and for mediumtemperature water heaters for domesticand commercial usage. A governmentprogramme that started in 2005 toprovide basic electricity to boardingschools and health facilities in remoteareas has increased the annual demandforPVpanelsby400kilowattpeak.

Instruments adopted: incentives in REsectorandPPAs

In order to attract investments in REsector, the Government of Kenya hasdeveloped and put in place three mainpolicytools:

• Feed-in tariffs and Power PurchaseAgreements

• 0%importduties

• VATexemption.

While theVATexemptionand0% importduty will ease the financial burden foractiveREcompanies,thefeed-intariffwillhave the biggest impact on overallinstalledrenewablecapacity.

TheFiTpolicywas issued inMarch2008andhasbeenrevisedin2010and2012.Itis an instrument aiming at promotingpower generation from RES includingwind power, biomass, small hydro, solar,biogasandgeothermal.

TheFiTssystemfocuseson:

• Resource mobilization by providinginvestment security and market

stability for investors in electricitygenerationfromRES;

• Reduction of transaction,administrative costs and delaysassociated with the conventionalprocurementprocesses;

• Private investors’ involvement tooperatetheirpowerplantsreasonablyand efficiently so as to maximizereturns.

The PPA enables independent powerproducers to sell electricity to KenyaPowerat theFiTprice fora fixed termof20yearsfromthedateoftheproject’sfirstcommissioning.

Once the PPA has been signed theapplicant isdue toapply foragenerationlicense or permit from the NationalEnergy Regulator to be issued inaccordance with the Energy Act andEnergy (licensing) Regulations. All thePPAs are approved and regulated by theEnergy Regulatory Commission, with thefollowingcriteria:

• Proof of land acquisition, access orusagerights

• Fulltechnicalandeconomicfeasibilitystudy

• Gridconnectionplan

• Environmental Impact Assessment(EIA)License

• Other relevant permits and approvalsengineering, procurement andconstructionPlan

• Evidenceoffinancialcapability.

Theprojectswithcapacitygreaterthan10MW will be subject also to dispatchinstructionsbythesystemoperator.

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Lessonlearnedfrommaturemarketsandtheirlocalapplication

Examples frommorematuremarkets likeEurope and South America could be veryusefulforlocalapplicationinSub-Saharanregion.

Europe RES incentive policy: oversupplyandgridenhancementcost

In severalEuropeanmaturemarkets, likeGermany, Denmark, Spain and Italy, highsubsidiesandgenerousincentiveschemestriggered an unprecedented growth ofRES over the last decade. Politicalwillingness, increasing emphasis onoffsetting climate change and adapting toits impacts together with a stable andgrowing electricity demand have furthercontributed to the renewablesmomentum.

After the world economic crisis of 2008,electricity demand plunged consistentlycreating an unpredicted oversupplysituation that unveiled some of thedrawbacks behind the rapid capacitygrowth,exacerbatedbyyearsofenduringeconomicstagnation.

With a fall in aggregate demand,conventional power plants face a longlastingdecreasingloadfactorforcingthemto remain idle for most of the time andunable to recover their fixedcostsduringpeak demand period, due to thedepressive effect of renewablesgeneration (with low or zero marginalcost) on prices. As a consequence, manyconventionalpowerplantswereforcedtoshut down ormothballing. This occurredin a situation where the largerparticipation of intermittent renewablesincreased the required reserve marginsand the need of reliable and flexiblegenerating capacity typically offered byconventionalpowerplants.

Thedecrease inpowerpriceshas in turnput pressure on the long term incentives

granted to RES. Over the past few years,several EU countries, like Romania,Bulgaria,Greece, Spainand Italyhave cutincentives forrenewableswith theaimofreducing government spending andelectricitybillsastheheritageofpastlongterm commitments were perceived asnon-sustainable (also thanks to the sharpfall in RES costs that the long termcommitments have allowed) due to theeconomic growth slowdown and demandstagnation. This while, at the same time,other European countries were laggingbehindinreachingtheirowntargets.

This, apart from leading to severalinternational arbitration cases againstgovernments, with a waste of time andmoney, has severely hit the credibility ofgovernmentsvisavisforeigninvestors.

In addition,many countries now face theissueofhowtodistributethecostsrelatedto grid enhancements (which have beenneglected in determining the cost ofpolicies), indirectly caused by the rise ofrenewables.

Choosing the perfect technology, Chile2000-2007

Up to 1990, Chile was developing itsenergymatrixwithlargescalehydro-damenergy, considering the abundance ofnatural gas in Argentina (located next toChile),anenergyinterconnectionprotocolwassignedbetweenthecountriesin1991.From that date the development of theChileanenergymatrixwasmainlyfocusedon the construction of combined cyclesfuelled by natural gas; in the 1990-2007period, three gas pipelines wereconstructedbetweenChileandArgentina,together with over 2,000 MW CombinedCycle(CC)plants.

However, in 2007, the gas supply forelectrical energy production fromArgentina was cut-off, as a result of aninternalongoingcrisis.

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Asa result, inChilenaturalgashad tobereplaced by fuel-oil, increasingdramatically the energy production cost(from 25 USD/MWh to over 160USD/MWh,dependingoninternationaloilprices10).

After this, the idea of a well-diversifiedand flexible generation mix became apriorityof energiespolicy. From2007upto date, energy growth has beendevelopedbymixingseveraltechnologies,suchascoal(over1000MW),hydro(over600MW),2LiquidNaturalGasprocessingplants and over 2,000 MW of renewableplants,mainlywindandsolar.

Oversupply and correct planning oftransmissionsystem,Chile2012-2018

In Chile, the transmission systemdevelopment is regulated by thegovernment,also,consideringthatChileismorethan3000kmlong,thetransmissionprojects are expensive and constructiontimeisaround3-5years.

Thenewtransmissionsysteminvestmentswere defined every 4 years, consideringthe generation and consumption projectsinformedbyeachprojectowner.

Between 2012 and 2014 many newconsumption (mostly copper mines) andenergy production projects came online,due to high copper prices and RESdecreasing costs. However, most of theconsumptions projects were notconstructed or delayed (due to thedecrease of the copper price) and theenergy projects were far more thanexpected.

The result was an oversupply situationwith the transmissionsystemnotcapableof transporting all the energy productionacross the country, losing cost-efficient

10In2009,combinedwithalackofhydroenergyproduction,duetoadrought,raisedthespotenergypricetoover250USD/MWh

energy sources, such as coal andrenewable energy, to supply theconsumption.

Asaresultimportantmodificationsofthetransmissionplanswereimplemented:

• Introductionof ayearly reviewof thetransmissionplanning;

• New investments can be introducedonly if its importance for thetransmission system it is clearlydemonstrated;

• More information about new projectsis now required, to each projectowner;

• Transmission system had beenstrengthened with over 1,000 km ofnewlines(thatwillbereadyin2018),to fully use the country energyresources and not depend on aparticular project for saving atransmissionsysteminvestment.

Lessonslearned

Developing a national energyinfrastructure with a perfect balancebetweeninvestmentsandendusertariffisagreatchallenge,nomatterwhat,country,regionorcultureareinvolved.Largescaleinvestment are required (e.g. the totalinstalled capacity inKenya can be valuedto at least 2 billion USD of totalinvestments) together with a stableregulatory framework and long termcommitments.Everyenergysourcehasitsstrengths and weaknesses (in terms ofpredictability, associated grid costs,optimal scale, etc.) and the system needsand relevant conditions can vary overtime.

To tackle all these issues energy policiesshouldaimat coordinatingall the systemparticipants to develop the system as awhole, including demand, transmissionandpowerplants.

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The most common way to coordinateinvestments in generation supply andelectricity demand is to call for energysupply tenders according to properlyassesseddemand forecast.However,withtheblossomofRES,suchaswindandPV,and they very short time tomarket, newproblems arise, like oversupply in solarhours and displacement of efficientthermal units (fuelled by coal or naturalgas). Pre-defined target levels of capacityper technology and for each networksystem node could help avoiding localoversupply and matching supply withdemand profile. In addition transparencyandpredictabilitytogetherwithamarket-based approach should characterize anyRESincentivepolicy.

Supply/demandcoordination

Whichdemand?

GDP growth, industrialization, extensiveurbanization,electricityaccess,populationgrowth, rising standard of living and themodernization of the agricultural andagro-food sector are the main drivers ofelectricitydemandinKenya.

Electricity access could be done byexpanding the national grid, whichrequires large investmentsandcannotbedone rapidly. Small scale and diffusedgeneration (off-grid and mini grid) canhelp overcome the issue. When talkingaboutoff-grid solutions renewables couldbe the best answer in particular solar PVwith battery back-up or AC solar micro-grids to distribute electricity to nearbyhomes and businesses. Also small windturbines and bioenergy are potentiallyviablesolutionsforoff-gridapplication.

Thereplacementof lightingsystembasedon kerosene and biomass (dominant inrural and off-grid consumers) with PVbattery based systems and moderntechnologies could further boost theelectricitydemand.

In Kenya an additional source ofelectricity demand could come from themodernization of the agro-food industryvalue chain that has a great potential inthecountry.

Increasing the electricity demand in asensibleway corresponds to a concept inwhich,thehighereconomicvalueofusingmoreelectricity is related toaprofit gainby the user according to his own profitcriteria that can be driven by economicprofit, comfort, health, family, pleasureand/orotherfactors.

Some of the ideas that can be applied toSub-SaharanAfricamaybe:

Seeding the demand through off gridsolutionsorfocalpoints

The Ollague town in Chile, through ahybrid power plant solution (batteries,diesel,PVandwind),gainfull24/7accesstoelectricityandbecameafocalpoint fordevelopment of the area. After the fullelectricity access was achieved,consumption has grown 30% more thanexpected and families of towns nearby,moved to Ollague lure by the electricityavailability.

Replacingotherenergysources

Replacing open fire or burning biomasswithelectricalstoveandheaterscouldbeefficient instruments to increaseelectricitydemand,securityandqualityoflife.

Around 3 billion people cook and heattheir homes using open fires and simplestoves burning biomass (wood, animaldung and crop waste) and coal. Over 4million people die prematurely fromillness attributable to the household airpollution from cooking with solid fuels[WHO,2016].

The potential gain in health for the usercanbean importantupside, thatcanhelpto get the funds necessary to cover the

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appliancescost.Also, thisnewdemandofelectric appliances can foster local“entrepreneurs” to develop newhomemade solution to address theproblem.

Combining technologies to profit fromrenewableenergy

A combined system of a solar thermalcollector and electrical resistance 11combines a renewable resource such asthe sun, with electricity through theinternalthermoresistance.This isagreatsolution for systems that use hot waterwith temperatures less than 60°C,producing savings around 50% of waterheatingcost.

Developingelectricitydemandthoughtneweconomicactivities

Electricity is one of the key drivers ofsustainable economic growth (EU, 2011,Agenda for change); a betterunderstanding of the local activities andeconomicscanleadthewaytomakesmallbuthighimpactinvestmentforincreasingeconomic growth and electricity demand.For example, a simple economic activitysuch as the gathering and sell of algae,done by a fisherman’s village can begreatly impacted with a hatching systemto breed the algae seed and improve itsproductionandavailability.Also,choppingand packaging system can be introduced

11Theelectricalresistanceisusedasheatertomaintainthewatertemperatureduringnon-solarhours.

to produce a higher value product. Now,thinking about solution that can beapplied for the Sub-Saharan area andconsidering the over 3 million users ofrudimentary stove, an interesting ideacouldbetodesignanddeveloptheuseofabasic electrical stove. There are somedesigns based on the use of a brick andelectrical resistance thatcanbeupgradedto produce a safe electric stove.Furthermore,thereispossibilitytocreatea new local industry of these appliancesthat canaid todevelopwealthof familiesandincreaseelectricitydemand.

Electricity exchanges and regionalcooperation:ariskmitigationtool

CurrentlyKenya’selectricity transmissionnetwork is interconnected with Uganda,Tanzania and Ethiopia and has set up anambitiousgriddevelopmentplaninorderto achieve the electrification target(universalaccessby2030).

Source: Kenya Electricity TransmissionCompanyLimited(KETRACO)

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Government’s goal is to significantly cutelectricity import from Uganda and stopimportingelectricityfromTanzania,whileimport from Ethiopia could be stoppedonly after the construction of a new 500kVDClinethatwilllinktheMoyaleCountytothenationalelectricitygrid.

Empowering the grid and extending theinterconnections and trades withneighbouring countries has significantpositiveeffectsthatinclude:

• Higher security of supply and systemstability through an increased andmoredifferentiatedgenerationmix;

• Lower level of reserve marginsrequired that could be shared amongobtaininghighereconomicefficiency;

• Lowercountryspecificrisks;

• Capitalsaving,astheneedtoinvestinnew power stations is reduced, sparecapacity could be shared and powercould flow fromareaswithsurplus toareasofdeficit

• Higherlevelofcompetition

• Cheapertariffforendusers

• Higher electrification rates of remoteareas

• More organic development withgreater absorption of intermittentRES.

It was exactly with the aim of exploitingthese benefits related to higher regionalcooperation,that in2005wasestablishedthe Eastern Africa Power Pool (EAPP).Todaythepowerpoolhas10countriesasmembers, namely Burundi, DemocraticRepublicofCongo (DRC),Egypt,Ethiopia,Kenya, Rwanda, Sudan, Tanzania, LibyaandUganda.TheEAPPisbeingsupportedby the US government, the World Bank,African Development Bank and theregion’sgovernments.

Today total power trades are still limitedbetween EAPP members as somerequirements are still lagging behind.Nowadays there is still no sufficienttransmission capacity between countriesand the development of major cross-border transmission lines is fundamentalto foster cross-countriespower trades. Inaddition the funding of these requiredinvestments must be properly assessed.Eventually, as the investments requireseveral years to be completed, a certainlevelofpoliticalstabilityandacceptabilityareessential for thesuccessof thepowerpool.

Finalrecommendations

Currently more than 70% of EasternAfrican countries population (around 180millionpeople)iswithoutelectricityaccess,due to lack of urbanization infrastructure(i.e.transmissionanddistributiongrid)andlowGDPpercapitaintheruralareas.Thisframework determines an apparent no-energy consumption or no-energy demandinruralareas.Sofar,about50%ofenergydemand has been absorbed by lightindustrywithadouble-digitincreaseinthelastdecadethatisexpectedtocontinuealsointhefuturewithagrowthratearound6-10%/year.

On the generation side, the governments’focusandpriorityhavebeentoincreasethesupply of reliable and competitive power,primarily through indigenous resources(hydro,coal,geothermaland,untilrecently,LNGformedthebulkofproposedcapacity).RES, notably wind and to a lesser extentsolar, are part of the scheme and areincreasingly important but do not enjoy aprominent role in the energy mix at thepresent time. RES could have a greatpotentialalsofortheoff-gridelectrificationof the country, acting as themost suitablesubstitute for biomass that is the mainenergy sourceofhousehold in isolatedandrural area. However electrification alonewill not be sufficient as electricity access

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mustbelinkedwithconsumptionthatmustbeproperlyassessedandstimulated(e.g.byreplacing other energy sources or bydevelopingneweconomicactivities).

Another key driver for the increase of theenergydemandwill be thedevelopmentoftheagro-foodchainthat,togetherwiththecontinuation of industrial demand growthcouldpreventtheriskoffutureoversupply.

Long term and well designed planningcombinedwitharealcoordinationbetweensupplyanddemandareessentialinordertoavoid unnecessary investment (e.g.oversupply)and/orawasteofresources.Tomanage the transition from a “nonelectrified” contest to a full energy access,the conventional businessmodel, based ona top down centralized approach, willprobablyneedthesupportofaninnovative

business model deployed through theinstallationofRESandoff-gridsystems.

With the support of proper stimulusmeasures on the demand side, this bottomup approach could lead to sustainabledemandgrowthforthenextdecadecloseto10%/year.

Lastly, regional cooperation will providethe region with an unparalleledopportunitytoprovide lowcostpowerandtriggering the economic growth, but keyinstitutionalandplanning challengesmustbe addressed. Along with investments onthe grid, interconnections and generationcapacity, governments should ensure abusiness friendly environment to fosterlocal and foreign investors. Only in thatcasemoreelectricitywill lead to increasedeconomic activities otherwise it would becostly.

Forfurtherinformation:[email protected]://www.res4africa.org

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De-riskingRenewableEnergyInvestments

Lessonstolearn,stepstotake

Paolo Gentili, PwC, Alberto D’Antoni, PwC, Masa Prelevic, PwC, Lorenzo Facco,D'Appolonia, Caterina Giorgi, Enel Green Power Spa, Luca Piffer, Enerray, SaraBombardieri,Italgen

Abstract

RenewableEnergy(RE)sectorrepresentsanimportantsourceofsustainableeconomicgrowthpossibilityfordevelopingcountries,suchasthoseinSub-SaharanAfricaregion.InordertoboostREsectoranddrawattentionofforeigninvestments,anattractiveandreliablemarketdesignisrequired.Policyframeworkwithspecificsupportmechanisms,as well as all economic agents involved in electricity generation, transmission,distribution, retailing and trading, constitute market design and therefore theirinfluence needs to be taken into consideration. Moreover, different political or socialcharacteristics and specific technicalities of the power sector vary from country tocountryresultingindifferentsetofrisks.Thispaperidentifiesthirty-sixpotentialrisk-issues grouping them in fivemain areas and elaborating them on practical examples(both outside and inside SSA region). In order to mitigate the risks and encourageinvestments in RE, Governments have been implementing diverse policy instruments.Feed-inTariff Fit) and auctions have emerged as currently twomost popular supportmeasures. The paper focuses on presenting pros and cons of each of them, boththeoreticallyandwiththerealexamplesandmakesrecommendationsonwhenandhowtheyshouldbeimplemented.

Background

RE technologies have experienced rapiddeploymentoverthepastfewyears,

mainlydrivenbytheambitiontoimproveenergysecurity,


incollaborationwith

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enhance energy access and mitigateclimatechange.

Many countries are now exploring waysto stimulate social and economic growththrough the development of the REsector, in particular in developingcountries such as Sub-Saharan African(SSA) area. Investment in RE cangeneratenewsourcesofgrowth,increaseincome, improve trade balance andcontributetoindustrialdevelopmentandjobs creation. However, investments inRE require large up-front investments.With scarce public funds, governmentsrarely can afford the entire cost of REdeployment.

Thus, RE strategies have to take intoaccounttheinvolvementofprivatesectorinvestors and their requests in order tobenefit fully from the socio-economicimpactsofRE.

Privateinvestorsaremotivatedbyprofitsand, in order to embed RE projects andfurther their development in the SSAregion, government has to ensure aproper and reliable framework, both inregulatoryandeconomicterms,ensuringinvestorswith aneconomicviability andprofitability.

There is an identifiable need for well-targeted government investmentincentives and support mechanisms inorder to develop private investment inRE in SSA. Investment promotion, areliableandstablepolicyframework,andfacilitation measures and incentives, ifwell-managed, are effective instrumentstoattractinvestments.

Objectives

This position paper intends to highlightpros and cons of the known REinvestments-related policies in theAfricancountriesand,ingeneral,alloverthe countries where successful policieshavebeenimplementedsofar.

The objective is to provide the best andthe worst practices to learn by whendevelopingREenablingpolicies,avoidingexperiencedmistakes.

Furthermore, the paper identifies allrelevant risks faced by investors andaims to explain how they affectsuccessfulnessofapolicy.

MainIssues

RE technologies have been publiclysupported for several decades but thespecificreasonssawanumberofchangesovertime.

Support policies to the development ofbiofuels and RE generationwere part ofthe public effort aimed at ensuring anddiversifying energy supplies andprovidingtechnicalsolutionsduringwarsandoilcrises,ortomitigateairpollutionandclimatechangeeffects.Thosepoliciesbrought in the years sound programmesfor R&D of photovoltaic cells and windturbines in Europe and the US, as aneffective tool to reduce dependence forinstancefromhighandvolatileoilprices.

However RE support policies are onlypartofawiderconceptofmarketdesign,where also wholesale/retail marketdesign and essential system servicescontributetodefineregulatoryandpolicyframeworksforthepowersector.

Marketdesigntherefore,requiresasetofrules governing the interactionof all theeconomic agents involved in electricitygeneration, transmission, distribution,retailing, and trading to reach theultimategoaloftheeconomicwelfare.

Theachievementoffinalgoalisindeedanoptimisation problem with three majorconstraints to be taken into account,necessarily:

• Policyobjectives;• Operationalconstraints;• Widerenergysystem

19

IEA12forinstancehasrecentlystructureda logical scheme to describe thisframeworkbyusingfivecriteriatodefinea good market design and policyframework for the whole electricitysector.Eachofthesecriteriawouldbringpotential pros and cons tobeanalysedwhendesigningregulatorysolutions.

1. Short-term efficient operation anddispatchofexistingassets.Thismeansa given service should be provided,oncedefinedthelevelofquality,atthelowesteconomiccost.

Pros Cons

Dem

and Enjoysagood

standardatareasonableprice

Suffersaqualityservicelowerthanthepricecharged

Offer

Avoidingextraoperational

profits

Inabilitytocreatemarginsandmarketdepression

2. Long-term efficient investments innew assets where the market designshould incentivise the right (cost-efficient) amount, the right type andtherightlocationofassets.Inthiscasesocialwelfareshouldbeoptimised.

Pros Cons

Dem

and

Enjoysexternalitiesassecurityofsupplyandlowcarbonemission

Sideeffectsbysystemconstraintsandnocosteffectiveservice

Offer Fairprofitability

ofinvestmentsDifficultytofindfinancialresources

3. Appropriate allocation of market,project and political risks betweengenerators investing in conventionalandrenewablegenerators,customers,other market players and thegovernment. Regulatory risk shall be

12IEA-RETD,ElectricityMarketDesignandREDeployment(RES-E-MARKETS),September2016

used as a threshold to ensure thecorrect level of investments and toavoidmarketentrancebarriersorfreelunch.

Pros Cons

Dem

and

SoundcontributiontothedevelopmentofRE

Uncertaintyintariffandpricetobepaid

Offer

Willingnesstoinvestandtooperate

Uncertaintyincashflowandbusinessplan

4. Efficient long-term rent allocationbetweendifferentmarketplayersthatare unsustainable in the long term.Market design should be proof ofpotential arbitrage or strategicbehaviour.

Pros Cons

Dem

and

Fairpaymentmaintainingthebusinessprofitable

Crosssubsidisationfromcustomerstogenerators

Offer

Avoidingdistortionamongplayersandensuringequityinthemarket

Potentialcreationofstrandedassets

5. Pricing externalities including forinstance carbon emissions or moregeneral power system externalitiessuchassecurityofsupply.

Pros Cons

Dem

and

Paysandenjoysexternalitiesassecurityofsupplyandlowcarbonemission

Suffersthenegativeexternalitiesoroverpaystheservice

Offer

Receivesfairincentivetoinvestmentandoperation

Createsnegativeexternalities

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All these criteria are required from theseveral parties (bothpublic andprivate)inthepowerandREmarket:consumers,producers, investors, financers,technological suppliers, marketoperators,publicauthoritiesandexternalstakeholders.

Since public funding in renewables isunlikely to increase above its currentlevel of 15%, as foreseen by IRENA,privatefinancewillhaveacrucialrolefornew investments. In particular,institutional investors will be able toscaleupREinvestment.

The OECD estimates that around USD2.80 trillion per annum is potentiallyavailable from pension funds andinsurance companies for new cleanenergy investment in developedcountries. However, this amount ofmoney needs to encounter favourableregulatory frameworks to be employed;otherwise,itwillfindnewpathsofuse.

Risks

Given the different political or socialcharacteristics and specific technicalitiesof thepowersector ineachcountry, it isoften impossible to reconcile the severalconstraints and to find an optimalregulatorydesignsolution.

Thismayenhancethebusinessriskstobe taken into account when deciding toperform new RE investments in a givencountry.Riskperceptionofacountryisa“three-headedmonster”.

Five main risk areas may precisely giveshapetotheperception,namely:

1. Risks related to the legalframework enabling generic andREinvestments;

2. Risksaffecting therevenuessideofREinvestment;

3. Risks affecting the costs side ofRE investment, both duringconstructionandoperation;

4. Risks affecting financialstructuring ofRE investment; andfinally

5. Risks related to environmentalandsocialissues.

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Area # Issue

1 Legalframew

orkenabling

Business

Environm

ent

Fram

ework

1 Startingabusiness2 Property/concessionrights3 Labourissues4 Disputeresolutionissues5 Businesstravelrules

REInvestment

fram

ework

6 REregulatoryframeworkreliability7 RulesfavouringmarketopeningtoIPP8 Gridcapacityandreliability9 Gridaccessrules10 PPA/FiTschemes11 Competingpolicies12 Institutionalactors’rolesandresponsibilities

2 Risks

affecting

Revenues

13 Revenuestability14 Availabilitystudiescoveringresourceassessment15 Riskofcurtailment16 Easeofprofitsrepatriation

3 RisksaffectingCosts Construction

17 Permitting18 Availabilityoflocalskilledworkforce(constructionphase)19 Availabilityofexperiencedlocalmanufacturers(constructionphase)20 Logistics(constructionphase)21 Security(constructionphase)

Operation

22 O&Mweightduetolocalconditions23 Sparepartsavailability24 Availabilityoflocalskilledworkforce(Operationalphase)25 Availabilityofexperiencedlocalmanufacturers(operationalphase)26 Logistics(operationalphase)27 Security(operationalphase)

4Risksaffectingfinancialstructuring

28 Longtermfinancingavailability29 Shorttermcreditavailability30 Interestraterisks31 Exchangeraterisks32 Currencyconvertibility33 Inflationrisk34 Taxregime

5Environmentalandsocialissues

35 Environmentalimpactassessmentproceduresclarity

36 Socialacceptance

These areas can be then decomposed in36relevantissuesinordertogetamorecomplete and detailed view of the riskperceptionofeachone.

It is interesting to notice how the riskperception of a certain issue caninfluence the perception of risk on theother issues and overall of the country,either in positive or negative way.Correlationamong the riskperception isoften strong when considering issues inthe same area, however risk perception

may also affect other areas. This isespecially true when two issues have acommondirectobject.

Practicalexamples

Let’s examine the influence of currencyconvertibility issue. A negative influenceof this risk-issuecanbeobservedon thecase of Egypt. The country has carriedout strong and investment-attractive REreformbyopeningthepowermarket forcompetition, implementing ambitiousRE

22

targets and offering the highest Feed-inTariff(FiT)amongallthecountriesintheregion. Despite all the appealing effortsby policy makers, many internationaldevelopersdecidednottoinvestinEgyptdue to lack of foreign reserves andextreme difficulty for currencyconvertibility.Thishadnegativeslipovereffect on the whole financial area andsignificantlydecreasedoverallevaluationofcountry’sattractiveness.

On the other side, case of Jordan candemonstrate how with a right approachby policymakers currency convertibilityrisk can be completely mitigated, andeven further, how it can be used toincrease attractiveness of a country.Namely, the Kingdom has set prices indollars, instead of local currency.Moreover PPA payments are directly inU.S. dollars, avoiding in this way, risksconcerned the currency convertibilityand exchange rate. Beside developers,many multilateral development banksappreciatedthispossibilityandincreasedtheirpresence in theKingdom. In recentyears,forexample,ithasbeenaddressedby one of the most innovate financingscheme “Seven Sisters”, aggregating forseven smaller scale PV plants for a totalamountof$207,5million.

Across the East Africa region the mostoften identified risks include poor gridinfrastructure,lowlevelsofliberalisationinbothpowerandrenewablesector,lowdiversification of sources in energy mix(instead remain reliant on hydropowersources), policy instability and difficultyrelatedtoaccesstofinance.

Kenya emerges as one of the leadingcountries for RE in the region. The levelof privatisation is improving but stillremainsrelativelylimited.Theregulatoryframework enabling investments isfavourable, due to attractive subsidiesoffered to developers. The country hassuccessfully dealt with the financial risk

areabydecreasing the inflationrateandarranging support from multilateraldevelopment banks. For example,togetherwithTanzania,ithasreceivedanUSD145mn loan from the AfricanDevelopment Bank (AfDB) forconstruction of transmission linebetweenthe twocountries,aswellasanUSD457.5mn loan from the World Banktoimproveitsgridinfrastructure.

Ontheotherhand,projectstypicallyfacetime-consuming delays, stemming fromlocaloppositiontoprojects,suchasinthecase of Lake Turkana Wind Powerproject. Taking into accountcomprehensive evaluation of the labour,logistics and security risks, Kenya lagsslightlybehindtheregionalaverage.

Moving beyond, the main issue inEthiopia is the overreliance onhydropower, which combined withclimate change anddroughts creates therisk of disruptions to the electricitysupply. Although Ethiopia still does nothave a notable number of non-hydropowerREprojects,itisexpectedtobecome one of the leaders in terms ofinstalledREcapacity,especiallywindandgeothermal, as the potential resourcebases are largely untapped. The countryhas started upgrading the infrastructureunder Growth and Transformation Plan(GTP) that aims to improve lowelectrificationrates.

Ethiopia experienced impressive GDPgrowth in recent years and it’s economyis expected to be one of the fastestgrowinginSSAregionovernext10years.It enjoys presence of development bankfunding and Chinese credit. While stillrelatively elevated, inflation has beenstabilized during 2012 and 2013. TheGovernmenthas takenvariousmeasuresincluding strict monetary and fiscalpolicies to overcome inflation issue.Therefore, the country does notexperience particular financial risk.

23

Despite some initial steps towardliberalisation and greater presence ofIPPs have been taken, the countryremainslimitedforprivateinvestmentintheREsector.

As most of the countries in the region,Tanzania largely depends onhydropowerthatcontributesalmost40%of total electricity generation.Furthermore,electricitygridnecessitatesimprovements and RE sector requireshigher level of liberalization. Recently,many projects have advanced to theconstruction phase, as a consequence ofan announcement by Tanzania ElectricSupply Company (Tanesco) that it willfollow a strategy diversifying fromhydropower.

Regarding the risks affecting legalframework, Tanzania took various stepssuch as creation of the One StopInvestment Center, which unifies allrelevant governmental agencies in onelocation to facilitate the provision ofservices to investors. Moreover, thecountry is a member of the MultilateralInvestment Guarantee Agency andInternational Centre for Settlement ofInvestmentDisputes.

Mitigationmeasures

In the previous chapters, risks thatdevelopers may face during aninvestment process and their influenceon policy outcome have been identified.Governments are implementing publicinstruments aiming at reducing therelatedinvestmentsrisks,asforexample:

• Feed-inTariffschemes(FiT);• Auctions;• ThirdPartyAccess(TPA);• NetMetering;• QuotaSystems,etc.

Following the slogan “any risk should beproperlyremunerated” both inEuropean,USorMediterraneancountriesaswellas

SSA countries, FiT and auctions, arenecessary features to attract privatesector requiring sustainable, profitableandbankableinvestments.

Over the past decade FiT has beencharacterized as one of the mostsuccessful support mechanisms toincentivise deployment of RE and itsapplication has been rapidly spreading.Although it is important tokeep inmindtheextensiveexperienceinpolicydesignalready acquired, there is also a crucialneedtokeepupwithinnovation.

RE sector is particularly prone to oftenchangesandtechnologyadvances.Lately,there has been a notable shift of factorsthathave influenceonREpolicy,suchasevidently lowercostsofREtechnologies.Consequently, determination of rightlevelofsupport(rightleveloftariffinFiTcase)hasbecomeevenmorechallengingandpoliciesmoreunstable.

In several markets, auctions aresubstituting FiTs as the solarprocurementpolicyofchoice.TherecentreportfromGTMResearchnotesthatthenumber of countries with FiT hasdroppedby22%since2014.Bycontrast,thenumberofcountriesutilisingauctionstoboostsolardemandhasspikedby92%in the same period, jumping from 14countriesto27.

Besides finances, the success of FiTs hasalso refreshed grid-integration concerns.As much as anything, FiTs have lostfavour because they do not incentivisethe cost reductions essential to makesolar competitive with other sources ofgeneration.

Auctionsprovidethedownwardpressureon costs and also have addedtransparencybenefits.Ontheotherside,

there are valid issues about auctions. Inparticular, there is little dispute thatauctionsofferaneffectivetoolforsigning

24

lots of PPAs at attractive prices, it’s lessclearwhetherthesolarpowerplantswillreliablyproduceelectricityover the longterm.

Tariff-basedsupportschemesforREhavebeen used in an increasing number of

countriesoverthelast10years.AlthoughFiTisstillthemostpopularmechanisms,the use of auctions is increasingworldwide. Policy learning betweencountries is an important driver forimprovingpolicydesign.

Strengths Weakness

FiT

Generallyattractiveevenforlow-riskinvestors Costlywhenhighdeploymentratesareachieved Reducestherisksforinvestorsalsoinemergingtechnologies Incaseoflargepremiumoffered,highsystemcost

Simplestructure,applicabletomassmarkettechnologies Tariffsettingandtariffadjustmentprocessischallengingandcomplex Acceleratesthepenetrationofnewplayersinthemarket Generationisnotexposedtoelectricitymarketprices Canbeflexiblydesignedtoaccommodatedifferentpolicyobjectives Noreallymeritocraticapproach

Oftenfundedbyconsumersandnotexposedtopublicbudgetcuts -

DrivesindustrialimprovementinREtechnologies -

Auctions

Highcostefficiencyduetopricecompetition Discontinuousmarketdevelopment(stop-and-gocycles) Usefultoestablishcompetitivepricing Remunerationvaluestronglylinkedtocompetitionlevel Highinvestorsecurityifauctionsarelinkedtolong-termPPAs Relativelyhighrisksofnotwinningtheprojectforhighinvestmentcostsfrombidders Usefulforvolumeandbudgetcontrol Highadministrativecostmakethemnotadequateforsmallsizeprojects WellscheduledauctionscanincreasethepredictabilityREsupply Underbiddingandneedforpenalties

Specificcapacitytargetscanbesetinshortspanoftime -

Meritocraticmechanismwithcheapestandhigherqualityprojectsselected -

Learningeffectovertimeforbothparties -

SouthAfrica:Lessonlearned

SouthAfricacanofferavaluablelessonforother developing and emerging marketeconomies regarding supportingmechanisms for RE projects, due to it’sexperiencewithbothFiTandauctions. In2009National Energy Regulator of SouthAfrica (NERSA) launched a RenewableEnergy Feed-In Tariff (REFIT) policy. Theinitial tariffs were perceived as quitegenerousbydevelopersandpolicymakerssoon had to drastically decrease tariffs(25% lower for wind, 13% lower forconcentrated solar and 41% lower forphotovoltaic). The period wascharacterizedbypolicyandregulatory

uncertainty.

Not long after, during 2011 NERSAdecided to change policy and approvedRenewable Energy Independent PowerProducer Procurement (REIPPP)programme.Until the timeofwriting thispapertworoundshavebeenlaunchedandboth are considered as a big successes:they caught interest of multipleinternational developers and attractedsound investments (53bids in roundoneand79inroundtwo,outofwhich28metthe minimum qualification thresholds inround one and 51 in round two).Following the first round, second even

25

further fostered competition and pushedprices still down. It isbelieved that thosepricesandshort time inwhich theywereachieved would not have been reachedwithFiTprogramme.

Critical factor for success and mainresults:

• Long term (2030) capacitydevelopment planning (IntegratedResourcePlan);

• Public confrontation and timelyengagementoncriticalissues;

• Extremely detailed RES plan, withclearyearlyplanningbytechnology;

• 5.2GWapprovedinfourbidrounds;• USD 3.1 billion investments

attractedonlyintheQ12015;• InroundIVawarded1,1GWatsome

of the cheapest tariffs globally(Wind52$/MWh,PV66$/MWh)andplanned auction for additional 6.3GW.

Recommendations

Allevidencesreportedaboveclearlystatethat,intheoptimisationofmarketdesign,the three major constraints might createrisks area to be addressed beforeinvesting in a country. By experience,despite many risks can be related to themacroeconomic and legislativeenvironment, public incentives stronglyhelped toovercomeanumberofbarriersandremuneraterisks.

Especially in the era in which skills andexpertisecanbetransferredatlowcost,itis necessary for SSA countries, extremelyrich in renewable potential, to build onlessonslearnedbytheothercountriesandmakedecisionsaccordingly.

As a first point, internationalisation andmarket openness are essential to createthe correct investment environment andtobetterreceiveforeigninvestors.

SSA countries often suffer from a lack ofbankableprojectsthatarelargeenoughtojustify commercial loan syndication andremain non-investable withoutcomprehensive risk coverage. The mainfinancial risks to slow down theinvestmentare:

Currency.Tariffs in localcurrencycannotgounhedged.TomanagethisriskNigeriahadsignedacurrencyswapwithChina.

Sovereign. The continent is a hub ofsovereign risk for wars, civil unrest andexposure to commodity prices volatility.To manage this risks Angola used theMIGA (Multilateral Investment GuaranteeAgency) political risk insurance for ahydroproject.

OFF-taker. Off-takers in Africa are oftennot bankable. Tomanage this risk KenyaofferstheWorldBankPRGguarantee.

As a second point, technical assets anddispatchingpotentialshallbeadequatetoRE targets. Governments that want torapidlyaddressinfrastructureshortfallsinthe region should remove regulatorybarriers to customer-sited generation(both on and off grid) and encouragegreatergriddevelopment.

The third point refers to incentivemechanism.Onthisissue,itisessentialtodynamically optimise the use of the twomechanisms (FiT and auctions) inperspective of an evolutionary regulationto avoid poor results, or evenworse, theunjustifiedextracostsforthesystems.

Experiences in fact, suggest consideringFiTincentivesasa“transitionmechanism”acting as an essential tool behind thecreation of the main requirements for asustainable RE market, efficient and fair.Foreign investors and industrial players,although with great expertise andfinancial capabilities, might beaccustomed to “familiar standards” andcontexts more similar to their home

26

country. To remedy this naturaldivergence with SSA countries, a FiTmechanism, whose strength andduration is able to properly stimulatethose players, might also allow an easierand rapid transition from a nascent to alaunchedandmatureREmarket.

Ifmarket signals show need for a securestimulus to find the optimal allocationsand to achieve the appropriatecompetitionlevels,itisthenthecaseforastructured FiT mechanism. Otherwise, incasesignalspushtoopenthemarket,afteradeepevaluationofthestatusoflearningcurvesandoftherealcostsfortheseveralRE technologies, auction system will bemore appropriate to ensure the correctdevelopmentofREinSSAcountries.

It is not even excluded that those well-advised auctions will not link additionalcapacity to a specific technology, butrathermake technologies competingwitheachotherinordertoensurethegreatestlevelling of costs. This would beparticularlyeffectiveincaseofutilityscaleprojects and not for small scaledistributedgeneration.

In conclusion,while competitive auctionshave lately proven more successful atensuring fair PPA prices especially forlarge-scale projects, both FiTs andauctions will continue to play animportant role for SSA energy sector incomingyears if rolledout in a stable andtransparentway.


27


UnleashingthepowerofhumancapitalforeffectivedeploymentofRESinEastAfrica

EmanuelaColombo,PolitecnicodiMilano,LorenzoMattarolo,PolitecnicodiMilano1

Abstract

Capacitybuildingatbothindividualandinstitutionallevelsplaysakeyroleinensuringthesuccessofenergyaccessstrategiesandcomplementing the technical, financialandpolitical efforts.Capacitybuildingneeds togobeyondaddinga trainingcomponent toanyintervention.Itneedstobedesignedtofullydeploythepowerofhumancapitalasoneofthecrucialassetsofanycommunity.AshighlightedbyAgenda2030,innovationand shared knowledge, aswell as new competencies, capacities and skills, are deeplyneeded to cope with today’s challenges. The role and centrality of human capital isespecially relevant within a transformative path for universal energy access. People-oriented and people-driven approaches need to be designed and adopted. In thiscontext, capacity building becomes the leverage to achieve local ownership and long-termempowerment–thetrueenginesoftheneededtransformativepath.

BackgroundandIntroduction13

A paradigm change is requested if wewish to support the penetration orRenewable Energies (RE) within theEastern African region and more ingeneralinthewholeSub-SaharanAfrica.

13Thecontentsofthispositionpaperareashortsummaryofamoreextensivework:E.Colombo,L.Mattarolo,S.Bologna,D.Masera,“ThePowerofHumanCapital:Multi-levelcapacitybuildingforenergyaccess”,SpecialFeaturePapertotheSustainableEnergyAnnualReport,(expected)2016,TheWorldBank

Inlinewiththevisionofthe2030AgendaforSustainableDevelopment“noonebeleft behind” and the clear focus onpeople, the cross-cutting role of humancapital (individually and collectively, ascommunities and institutions) has beenawardedwithacrucialrole.

Indeed, without the proper humanresources, it isrecognizedthatitwillbenot easy to achieve the transformativechange for sustainable energy


incollaborationwith

28

strategiesthatisrequestedbythetodaychallenges of the African continent. Theright skills and competencies areneeded for the design, uptake, andsustainablemanagementof technologies,business models, and enabling policyframework. At the same time, theintroduction and adoption of new orimproved RE technologies require newskills for installation, maintenance, andservice. The new and diverse energymarkets require that different playersunderstand their role. Among them wecount consumers, communities, policymakers, regulators, and financialinstitutions.

In strengthening the role of peoplethroughout the entire energy supplychain – from production to users –capacity building and training activitiesmay develop the local expertise neededto replicate and scale-up successfulinitiatives, support ownership ofstakeholders, and foster long termsustainability.

Objective:humancapacityandsustainableenergystrategies

Sustainable Energy Solutions are pre-requisitesforimprovingthequalityoflifeand enabling the socio-economicdevelopment. Appropriate energysolutions and technology choices mustrespond to the needs, capacities andaspirations of people andbe absorbedwithinthe indigenousculture,adaptedand later improved at local level. Forthese reasons, people should be at thecentre of any energy solutions andcapacity building an asset for long termstrategy.

Over thepast20years, therehasbeenamajor rethink of the concept of capacitybuilding. To begin with, the notion of“capacity” has evolved from one thatfocuses on the ability of organizationsandpeople tobe resilientandsuccessful

toonethatfocusesonself-reliance.Here,the emphasis is on the ability ofindividuals, organizations, and societiesto set and achieve their owndevelopmentobjectives,andtheabilityof human beings to perform, self-sustain, and self-renew.There isalsoarecognizedneed to go beyond thedirectequivalence that defined “capacitybuilding as training” and to extend thefunctional dependency of capacitybuilding toward a wider vision ofeducation as a fundamental humanright. This approach is also in line withthe original statement included in the1992 UN Sustainable DevelopmentAgenda 21: “The ability of a country tofollow sustainable development paths isdetermined to a large extent by thecapacity of its people and its institutionsthat complements its ecological andgeographical conditions.” Such a holisticvision includes various sets of actionslike: (i)building abilities, relationshipsand values; (ii) strengthening theprocessesandtherulesthat influencecollective and individual behaviour;and (iii) enhancing technicalcompetences, soft skills, andattitudestoenablethemtobeproactiveplayersfordevelopment. This viewpoint is alsohighlighted in the report by theInternational Energy Agency (IEA) andWorld Bank’s “Sustainable Energy forAll 2015 – Progress TowardSustainable Energy,” which includescapacity building as one of the fourcomplementary themes that are crucialfor making any progress in broadeningenergyaccesssolutions.

Maintask:learningfrominternationalexperiences

Despiteacommonframeworksuggestingthemostrelevantactiontobedoneinthefield,theexperienceoffourinternationalentities may provide some generalinsights and approaches to drive future

29

strategies for capacity building andempowerment.

UNEP:energy&environmentalnexus

UNEP (United Nations EnvironmentalProgram)hasastronginterestinenergy.Ontheonehand,theproductionanduseof energy may induce a number ofenvironmental problems at the local,national,regional,andgloballevel.Ontheother hand, a lack of access to energyhinders the economic and socialdevelopmentofbillionspeople.UNEPisworking with countries to help themmeet thechallengeof sustainableenergyfrom a life-cycle perspective. Thisincludes varied approaches, likeanalysingenergypolicies,climatechangemitigation, energy sector reform, andindustrial energy efficiency. UNEPfocuses on enabling decision makers todeepen the link between energy choicesand sustainable development, andhelping financial institutions profit fromthe good investment opportunitiesavailable. It alsoworkson strengtheningan informal network to build a globalcommunity of sustainable energypractitioners.

IRENA:renewableenergies

The International Renewable EnergyAgency (IRENA) is an intergovernmentalorganization that supports countries intheir transition to a sustainable energyfuture and serves as the principalplatform for international cooperation, acentre of excellence, and a repository ofpolicy,technology,resource,andfinancialknowledgeonRenewableEnergy(RE).

IRENAoperatesontheprinciple that theprocess of empowerment needs to becomprehensive, issue-based, regional,participative and accountable. Inkeeping with this principle, it supportsthat readiness and capacity need to beassessed, given that RE requires asystemicshiftandadditionalskillsand

competencies that can: (i) apply to off-grid or on-grid, and (ii) be used at avariety of levels, such as residential,industrial,andsmallorlargescale.

UNHCR:energyinhumanitarianaid

UNHCR (United Nations HighCommissionerforRefugees)hasrecentlydefined a first strategy to promoteappropriate household fuel and energytechnologies(includingtheexpandeduseof RE) to improve the protection andwell-beingofrefugees.Capacitybuildingis recognized as one of the essentialelementstoensurethestrategy’ssuccess.

Thestrategywillseektointegrateenergyrequirements into emergencypreparednessandresponse.Moreover,innovationneedstoplayacrucialroleinhumanitarian settings, either fortechnological solutions or for fundingopportunities. UNHCR believes that aneffective strategy needs to be based onmulti-stakeholder partnerships(including national entities) and shouldempowerthehumanitarianactorsaswellas the refugee community by alsocreatingsynergieswithothersectors.

GEF:fromenvironmenttoenergy

The Global Environment Facility (GEF)was established on the eve of the 1992Rio Earth Summit to help tackle ourplanet’s most pressing environmentalproblems. Its interest in energy is thusmainly focused on the impact that theenergy sector may create on theenvironment. The GEF strategy oncapacity building is designed around anumber of principles: partenership sothatmulti-stakeholder consultations anddecision-makingprocessescanbeheldatthe regional level; a comprehensive andholistic approach so that the dynamicnature of capacity building may beacknowledgedbyadoptingalearning-by-doing approach; national ownership andleadership need to be acknowledged so

30

that capacity building efforts are basedonasortofself-needsassessment.

UNIDO:fromconsumertoprosumer

Energyisameanstoachievesustainabledevelopment and not an end in itself.Rather, the success of energy initiativeswillbemeasuredbytheimprovedhealthof the beneficiaries, number of new jobscreated locally, number of lives saved,increased local/national economicoutput,andincreasedlevelofeducation–andnotjustkilowattsperhourofenergygenerated.

Within this frame, the traditionalenergychainwillsoonnolongerexist.The energy supply chain from thegeneration plant to the consumer, oncefairly switching away from a few largecentralized power plants coupled withwidely extended distribution lines, isevolvingintoamoreflexible,upgradable,and diverse model that focuses ondistributed energy generation based onRenewable Energy Technologies (RETs).Consumersareturningintoproducers,transforming the energy conversionchain into a multi-dimensional, multi-layered energy matrix that is growingmore complex and articulated. Thesearch for effective solutions to increaseenergyaccessindevelopingcountrieshasledtotherecognitionthat industriescanandshouldplayacrucialrole.Industriesthat generate their own energy canalso increase their income by sellingexcessenergyandprovidinganessentialcommunity service. A win-win situationcan be established by increasing theefficiency of energy processes inindustries through theuse of waste; orapplying any source of RE, along withintroducing electricity as a revenuestream. The diversification of productsandservicesbylocalindustriesincreasestheir resilience and marketcompetitiveness and simultaneouslycontributes to developing the local

community. Local industries that bothproduce and use Renewable EnergySources (RES)s (suchas solar,wind, andbioenergy) for their own needs, alongwith selling the excess energy to thesurrounding community, can be definedas “industrial prosumers.” Thisinnovativemodelisbasedonthefactthatlocal industries possess the necessarybusiness capacities to run an enterpriseand therefore represent a low hangingfruit in the expansion of energy servicesforthelocalcommunity.Nevertheless,ontop of the business capacities, localindustries need the support of energyspecialists, technicians, operators,researchers, investors, and supportinginstitutions (such as governments,universities, and financial organizations)tobecomeeffectiveindustrialprosumers.Expandingcapacitybuildinginitiativestodevelopandretainaskilledworkforcetomeet these new opportunities will becritical to ensure that new energymarkets are developed to achieve thegoalofsustainableenergyforall.

Recommendations:innovationandcreativitiyforcapacitybuilding

To facilitate the transformative changethat is required to scale up SustainableEnergy Strategies, promoting thepenetration of Renewable Energies andassuringUniversalAccesstoall,fromthecase studies presented, somerecommendationsmight be drawn. Theywill be essential for fully unleashing thepower of human capital and the pillarsaround which any future innovativeschemeneedtobedeveloped

• Diversified targets. Capacitybuilding should address differentbeneficiary groups, which may havedifferent access to trainingopportunitiesattechnical,vocational,orinstitutionallevels.

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• Different skills. Capacity buildinginterventionsshouldbediversifiedtoaddress the different needs for skillsexisting at different levels of theenergy supply chain and withindifferent local contexts – and bealigned with the ability of thedifferenttargetgroups.

• Multitude of stakeholders. Due tothe diverse nature of the requiredcompetences, a variety of local,national, and internationalstakeholders should be involved(even beyond the traditional playersoftheeducationalsystems).

• Life-cycle perspective. People arethecatalystandthedriversofchange.Theircapacityneedstobedevelopedall along the supply chain of thedesign solution, and within thisapproach, linking skills and workneedstobeaguidingprinciple.

• Comprehensive approach. Capacitybuilding for energy access shouldencompass a comprehensiveapproachbasedonhuman, scientific,organizational, and institutionalcapabilities.

• National/regional and localstrategies. The need to strengthennational capacities should be sharedby all countries and should be ableboth to drive national-based prioritydefinition and regional coordinationand toassure thesupport toproject-basedorspecificlocalactions.

• Teaching tools. Amix of toolsmaybeused,varyingwiththetargetsandthe expected learning outcomes(including training, seminars,workshops, on-the-job tutoring, andsitevisits).

Forfurtherinformation:[email protected]@polimi.ithttp://www.res4africa.org

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PerformanceandImpactEvaluation

Anintegratedframeworkforenergyprojects

FactSheetpresentedby

Emanuela Colombo, Politecnico di Milano, Lorenzo Mattarolo, Politecnico di Milano,FrancescoRomeo,PolitecnicodiMilano,MarianoMorazzo,EnelFoundation

Abstract

Theglobalsocietyisfacinganumberofinterconnectedchallengeswhicharehighlightedby the Agenda 2030 of the United Nations and the associated 17 SustainableDevelopment Goals. Within these global challenges, energy plays a relevant role,essentialtotheachievementofbasichumanneeds,tothesocio-economicdevelopmentof countries, to environmental protection and global security at international level.Given this interconnection, a proper evaluation metric able to assess the effects ofenergy projects on a comprehensive base becomes necessary, not only in terms ofenergyprovided,but ratheron thechangesof community livelihoodsand thepositiveeffectsonsocial,economicandenvironmentallevelsbroughtbytheactionsonthelongterm.

Starting from this perspective and relying on the most recognized and utilizedevaluation frameworks, as the criteria of DAC-OECD, the Results Chain and theSustainable Livelihoods Approach by DfID, this study proposes an IntegratedPerformanceandImpactEvaluationFramework,structuredintwophases:aninternal,project-based, which assesses projects in terms of performance, and an external one,people-based,focusedontheprojectimpactonthebeneficiarycommunitiesintermsoflivelihoodschanges.

This model provides information and quantitative results for comparative analysesamong projects and feedback for decision making, in order to orient policies andstrategiesinthefieldofsustainableenergyinitiatives.

WhatisEnergyfor?

Over the last decades, the interest of theinternational community for sustainabledevelopment and the multipleinterconnections among energy,environmentandsocietyhaswidelyi

ncreased. Different initiatives have beenpromoted,thoughwithacommonfeatureof overcoming the fragmentation ofdifferent competences and disciplines infavour of the integration of economic,

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environmental, and social objectivesacross sectors, territories, andgenerations. This holistic approach ofsustainable development, embracingcomplexsystemssuchasglobaleconomy,social interactions, change in earthprocess, governance regulation, has beenclearly remarked in the 2030 Agendarecentlylaunched,whereinterlinkagesareembeddedwithinthenewparadigmofthe17SustainableDevelopmentGoals.

The centrality of energy withinsustainable development is definitelymarked: energy has started to beconsidered as a keymean for unleashingdevelopment,supportinglocalenterprisesand creating new jobs, improving healthand education, in addition to assuresustainable and equitable access to basicneeds.Despite the relevance of energy inthe development framework, 1.3 billionpeople today still do not have access toelectricity, 2.7 billion depend ontraditional biomass for their owndomestic use and around a billiondonothave access to a reliable electricity grid.These numbers are not likely to changesignificantlyinthenearfuture,evenunderthemost optimistic scenarios in terms ofpopulationgrowthandenergystrategies.

Anevaluationmetricforassessingimpactfrompeople’sperspective

In this framework, the adoption of anevaluation metric able to address thecomplexity and interconnections ofcurrentchallengeshasbecomenecessary.Indeed, proper communication andreporting of undertaken programmesrepresentuseful instruments for involvedstakeholders, in terms of accountability,for setting priorities and to guide andbetteraddressfutureinterventions.

Startingfromthisperspective, inthefieldof energy it is therefore important toassess performance of actions and theirlong-term impact, not only in terms of

energy servicesprovided, rather in termsoftheircontributiontolocaldevelopmentand improvements in the communitylivelihoods.Theseevaluationmetricsmaythen allow proper formulation ofincoming projects and targeting futurestrategies. However, today nostandardized and shared evaluationframeworksyetexistandmostevaluationmetricsarenotonlyqualitativeandpoorlystructured but are also difficult tocompare,differingonefromeachother.

In the attempt of harmonization, theDevelopmentAssistanceCommittee(DAC)of the OECD has proposed someevaluation criteria, which are globallyrecognizedandutilizedandwhichcanbeassessed along Results Chain of a project(input, activities, output, outcome,impact). Such criteria constitutes thestartingpointofthenewPerformanceandImpact Evaluation Framework heredescribed.

Anewandintegratedevaluationframework

Theevaluationmethodologydevelopedbythe UNESCO Chair in Energy forSustainableDevelopmentatPolitecnicodiMilano, in collaboration with EnelFoundation, aims at providing anintegrated framework, which enables tounderstand performance and impact ofenergydevelopmentprojects.

Fig.1-TheDAC-OECDresultchain

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Itisstructuredintwophases:aninternal,project-based, which assesses projects interms of performance, and an externalone, people-based, which assesses theproject impact on the beneficiarycommunities in terms of livelihoodschanges, shifting the attention from theprojectitselftothecontextconcerned.Theobjectives and timeframes of the twoanalyses are different and requiredifferentapproachesandtoolsinordertoperform an integrated assessment of thecooperationprojectsintheenergyarea.

Inthefirstphase,fourDAC-OECDcriterias(effectiveness, efficiency, relevance andsustainability) are calculated with acommonmetric, adopting exergy analysisand recent Life Cycle extensions of thismethodology.Inthisway,exergybecomesa ‘proxy’ of the primary resources totalconsumption undertaken during theproject.

Fig.2-Internalphase,performanceassessment

This homogeneous unit measures thedifferent input flows, all expressed intermsofresourceconsumption,leadingtoa quantification of four criteria throughdimensionless indexes.Theapplicationofthisanalysistoseveralprojectsallowsthe

creation of a benchmark useful forcomparing the results from differentprojects–especiallyintermsofresourcesconsumption – and identifying the beststrategies based on each result category(education, health, agriculture,entrepreneurship,etc.).

Thesecondphaseisdedicatedtothefifthcriterion, the impact, which aims atmeasuring theeffects that theprojecthasonthelocallivelihoods,assessedintermsof target community’s five capitals:natural, physical, human, social andfinancial. The model is an original re-elaboration of the "SustainableLivelihoods Framework", adopted by theDepartment for InternationalDevelopment and investigated by theImperialCollege.

Thisphasehasbeendefinedstartingfromtwonecessities:on theonehand toallowthemodelcustomizationandapplicabilitytodifferent contexts, allowing todesignaproper indicators’ set, on the other toprovide a common structured metricwhich may be utilized for differentprojects and may enable theircomparisons.

Fig.3-Externalphase,proceduretofollow

A schematization of the proposedmethodologyfortheimpactassessmentis

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based on: (i) an application procedure(figure 3) structured into three steps,customization, development and resultsanalysis, (ii) an evaluation hierarchy,made of five capitals, representingcommunity livelihoods and dimensions,i.e.thosetopicsandthemesrelevanttobemonitored for a complete impactevaluation, covering both tangible andintangible aspects of a community andhelpful to get a comprehensive overviewof changes (figure 4). Firstly, the mostrelevant dimensions for each capital areidentified. Then, individual indicators aredesigned and selected within eachdimension,beingspecificandadaptabletoeachproject.

Fig.4-TheEvaluationHierarchy

A defined procedure then follows, tonormalizeandweighsuchindicators.

The impact evaluation methodology, bymeasuring the indicators status beforeand after the project, allows theidentification of those dimensions overwhich the intervention has had animprovement or worsening. Theaggregation procedure of indicators thenquantifies the contribution of eachdimensiontoeachcapital.

Fig.5–Exampleofimpactassessment

The methodology may have differentutilization. The methodology mayrepresent an ex-post analysis, assessingalready completedprojects by comparingthe measure of capitals in the baselinesituationwiththechangesbroughtbytheprojectandassessedatitsend.Itmayalsobe used for ex-ante analysis, at anappraisal phase, during the selectionprocess among possible projectalternatives; in this case the result givesanexpectedimpactoftheintervention.

Applicationtocasestudies

A series of case study to real-worldprojects have been performed. Initially,projects implemented by Enel GreenPowerwereassessed: theOllagüeproject(OllagüeisasmallvillageinChilewhereahybrid mini-grid has been installed), thePoweringEducationproject(consistinginthe distribution of solar lamps to 180Kenyanstudents)andtheBarefootCollegeproject (trainingMexicanwomenassolarengineers, providing domestic solar kitsand establishing a solar committee in

Impact'

Natural'Capital ''

Land'

Indicator*1*

Indicator*2*

Indicator*3*Water'

Air'

Ecosystem'&'Biodiversity'

Raw'Materials'

Physical'Capital'

Heavy'Infrastructures'

Light'Infrastructures'

Smart'Infrastructures'

Human'Capital'

EducaDon'&'Competences'

CapabiliDes'

Health'Status'

Social'Capital'

CollaboraDon'&'IniDaDves'

Equity'&'Inclusiveness'

Financial'Capital'

Economic'Status'

Formal'Economy'

Informal'Economy'

Capitals* Dimensions* Indicators*

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charge of the panels’ management andmaintenance).

Fig.6-ImpactassessmentoftheOllagueproject

Conclusionsandfurthersteps

This Integrated Performance and ImpactFramework takes its rationale from theliterature and covers all relevant issuesforacomprehensiveevaluationthroughaholistic and transversal perspective. Itrepresentsacommonstructureapplicableto any project, with also features offlexibility and customization to eachspecificcase,withtheownsocio-economicandculturaldiversities.

Results are easily interpretable andanalysable in graphical terms. Indeed,they allow trade-offs among possibleimprovements or deteriorations ofdimensionswithinsamecapitalsoramongdifferent capitals. Moreover, data aresuitable for comparisons among projects.Intermsofcommunicationandreporting,this framework may divulgate results todonors or stakeholders, as well as maygive indications to address futureinterventionsandstrategies.

Forfurtherinformation:[email protected]@[email protected]://www.res4africa.org

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IntegrationofRenewableEnergyinelectricitygrid

ModestoGabrieliFrancescato,Terna,PierluigiDiCicco,Terna,BrunoCova,CESI,PaoloMarino,Poyry,FjoralbaKoci,Poyry

Abstract

RESdeploymentandgridenhancementshouldfollowaparalleldevelopmentpath.A“fitandforget”approachisnotimaginableinSub-SaharanAfricawerethegridisoneofthebarriers to RES development, both from the TSO’s as well as from the investor’sperspective. The introduction of necessary regulation and legislation to let thegenerators be in the network without physical constraints and allow RES powerproducertoaccesstothird–partybuyersisapriority.

Background

InSub-SaharanAfricaoutof around900million inhabitants (13% of the worldpopulation), only a third has effectivelyaccess to electricity, leaving over 600million people into darkness, especiallyin rural areas. In some Countries, likeNiger or Chad, the percentage of peopleconnected to the grid does not reach10%.

Unfortunately these impressivenumbersaren’t improving, as the population isgrowing faster than theeffort toprovideelectricityaccess.

Moreover, for theminority connected tothe grid, supply is often uncertain, withrecurringoutagesduetocompelling

needsofinvestmentsintransmissionanddistributioninfrastructures.

Nevertheless, despite its poorness inenergy supply, Sub-Saharan Africa istremendouslyrichinenergysources.

Talkingabouttraditionalenergysources,from 2009 on, almost 30% of worlddiscoveries of oil and gas weremade inSub-SaharanAfrica.Overall, Sub-SaharanAfrica holds around 7% of worldconventionaloilsourcesand6%ofworldgas sources, enough to meet regionalneeds,bothnowandinthenextdecades.

Also from the Renewable Energy (RE)resources point of view, Sub-Saharangeographypresents an amazing rangeof


incollaborationwith

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opportunities. Suffice to say that thetechnical hydropower potential isestimated atmore than 280GW, able togenerate almost 1200TWh/year, morethan 3 times the current Sub-SaharanAfricaelectricityconsumption,whileonly10% of this potential is currentlyunlocked.

The role of European utilities might becrucial in advising local authorities andcompanies for the integration ofRenewableEnergySources(RES)intothesystems. Best practices andmethodologiesmaybeacommongroundfor training programs (in order to setupexperts) and technical assistance (inordertoperformtechnicalstudies).

As already explored in several pastprojects, the experience and skills ofEuropean utilities like Terna, aselectricity system operator, mayrepresent an important tool for Africanparties. We can bring the example ofAngola and Mozambico, where TernawithCESI’ssupporthascollecteddatafortechnicalassessmentofelectricitysystemin the current situation and, thanks to afruitful cooperation with localauthorities,builtandsimulatedlongtermenergy scenarios that will be a usefulfootprint for a coordinated futureapproach between Authorities andutilities.

Currently there isalsoa JVTerna–CESIfor a Technical Assistance to KETRACO.TheoverallobjectiveoftheJVisaimedat(a)creatingaframeworkforsettingupadivision to operate and maintainTransmission Infrastructures, (b)drawing up a road map to transformKETRACO into a future System andMarket Operator and (c) trainingKETRACO’s staff accordingly. Over thenext three years the Terna – CESI team,composed of around 20 experts, will beaccompanying KETRACO to become amajorplayerinthefutureEasternAfricanPowerPool.

Italianexperienceataglance

Considering the Italian situation, asconsequenceof greenpoliciesdevelopedin the European contest and theintroduction of subsidies in 2006 byItalian government, Italy experienced arapid build of REprojects and today thecountry has 18.6GW of operational PVand8.7GWofwindsystems.

ThreemainphasesoftheRESintegrationintothesystemcouldbeconsidered:

1. Connectiontothegrid2. Fullydispatchability3. MarketIntegration

Figure1–WindandSolardevelopmentinItaly.

The first two phases are alreadycompleted;thethirdoneisstillongoing.

Figure2–RESintegrationphases.

1) Terna reacted to the impressive

phase of connection requeststhrough

- local solutions (Figure 3)Connecting the singleplant with specific gridstudy;

- and system solutions(Figure 4): 150 kVcollection station vs380kVcollectionstations,connecting a cluster of

1,6 1,9 2,7 3,5 4,9 5,8 6,9 8,1 8,6 8,7 9,20,1

0,41,1

3,5

12,8

16,418,4 18,6 18,9

1,6 1,92,8

3,9 6

9,3

19,7

24,5

27 27,3 28,1

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Wind [GW] Solar [GW]

Connection

Dispatching

MarketIntegration(ongoing)

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plants with System gridstudy.

Figure3-LocalsolutionforRESintegration.

Figure4-SystemsolutionforRESintegration.

2) The fully dispatchability of RESpowerplantsisguaranteedonlyifall of the security conditions arerespected.Whenin2011,10.4GWof PV wind capacity came onlineTerna, warned about congestionand overload risks and called forimmediate interventions: Terna,supported by an adequateregulatory framework has fixedmost of those issues both withsoftware and hardware solutionsIn particular but furtherimprovements could be neededconsidering future systemdevelopments. Followingrequests by the Regional GroupContinental Europe of Entso-E,AEEGSI initiated aprogramme toensure the grid’s security via aseriesofgridcodes.

3) The last phase is the fullintegrationofRESintotheEnergyMarket. At this aims, incompliance with EuropeanNetwork Codes, a process for anorganicreformofItalianancillary

servicemarket(ASM) ison-goingandrecentlytheItalianRegulatorissued a consultation documentto allow distributed generation,demand, non-programmablerenewable sources to enter theASM.

Recommendation from RES4Africa: theconnection to the grid, the fullydispatchability and market integrationneedtobecommonly taken intoaccountand developed step by step to notjeopardizearapidintegrationofRESintothesystem.

Operating power systems in presenceofnon-programmableRESgeneration

The impact of non-programmable RES(or VRE: Variable Renewable Energy)generation,namelywindandPV,shallbeaddressednotonlyattheplanningstage,but it shall be kept into account alsowhen operating the power system inorder to ensure appropriate securitymarginsnecessarytofaceoutagesongridcomponentsorongeneratingunits.

According to the experience gained bythe European TSO’s that are sometimesoperating their power system with ashare of VRE generation exceeding 50%of the load the main issues to beaddressedinadvancearethefollowing.

Riskof“over-generation”TheexcessofVRE generation, particularly PV, in dayswith low demand is revealing to be acriticalfactor,asshowninthediagramofFigure 5 referred to the Italian system[1].

Figure5-ExampleofloadandgenerationprofilescorrespondingtoexpectedOGsituation.

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Thesumofscheduledpower importandminimum dispatchable conventionalgeneration may exceed during somehours the residual demand, i.e. the netdemand deducting the non-programmable RES generation. Tobalance the system, structural long-termmeasures shall be adopted, like buildingnew pumping stations when feasible, ormarket-based measures, like the cross-border coupling of balancingmarkets toavoid reducing NTC’s (Net TransferCapacities) with a consequent marketfragmentation. Reduction of NTC inimport can be adopted only as anemergency short-term measure. Similarrisks of “over-generation” are beingexperienced also in other EU MemberStates[2].

Recommendation from RES4Africa: theunit commitment policy of conventionalgeneration shall be suitably reviewed tominimise the number ofmust-run units,while ensuring the security marginsaccording to the provisions of thenational/regional Grid Codes. Ininterconnected systems, possiblebilateral/multilateral agreements can beestablished to exploit the cross-borderpower transfer capacity for exportingsurplus VRE generation (or, conversely,to import power in case of powershortfall in situation of poor VREgeneration).

Need for additional reserve Due to ahigher volatility of intermittent RESgeneration and consequent higherforecast errors, systemoperators shouldensure an additional amount of upwardand downward reserve provided byconventional generation to balance thesystem. Problem arises when at theoccurrence of a remarkable penetrationof RES generation, a reduced set ofconventional units is dispatched. Thedispatched units shall be sufficientlyflexible to ensure the requested reserve.Thus, flexibility enhancement ofconventional generation is becoming akey priority to operate the system in anefficient way together with possibleapplicationofstoragedevices.

To this purpose, it is worth underliningthat the massive deployment of VREgeneration,besidesanimpactontheday-market prices, reveals an adverse effecton the ancillary servicesmarkets (ASM),thecostsofwhicharestronglyincreasingduetothefollowingreasons:

• Thevariabilityandtheuncertaintythatis inherent in the VRE generation isadded to the variability and theuncertainty in theexisting system:asaconsequence, the TSO has to createlargerreservemarginsthaninthepast,withhighercostsforthepowersystem;

• Thereductionofthethermalgenerationin favour of the RES generationdecreases the number of the thermalpower units dispatched in the energymarkets.Therefore, it is less likely thatthe reserve margins are availablewithout re dispatching actions in theASM.

Figure6-EvolutionofthecostsintheASMinItaly.

Indeed,asFigure6clearlyshows,inItalythe costs for re-dispatching in the ASMhave almost doubled over three years.For these reasons, in order toaccommodate more RES generation inthepowersystem,thetrendnowadaysisto askalsoVREgeneration to contribute

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totheASM.ThemostpromisingservicesthatREScouldprovidearethedownwardtertiary reserve and the downwardbalancing services. Recently, TSOs arealso asking for the instantaneouscontribution of VRE generation tofrequency regulation through the“synthetic inertia”, i.e. by properlyequipping the generations of controldevices able to react to frequencydeviations from the rated value.Obviously, necessary communicationsand control systems should be realizedand this can be achieved with lowexpenditures both for the renewablepower units connected to the highvoltage grid and for units connected tothe distribution grid by enhancing theautomation and intelligent dataexchanges (“smart distribution grid”concept).

RecommendationfromRES4Africa:RESpowerplantstobeequippedwithcontrolsystems helping to supply ancillaryservices.

Load Following The PV generationpattern aswell as that of other VRE arefully decoupled from the daily loadbehaviour. Particularly in the lateafternoon/earlyevening,PVgenerationis originating high load gradients to befollowedbytheconventionalgeneration.

Figure7-ItaliandemandprofileinatypicalSummerSundayin2014

The diagram of Figure 7 depicts a realcase referred to the Italian system. Theload gradient may be even steeper than10 GW/hour in case of wind generationdecrease in the late afternoon/earlyevening. Hence, the enhancement of the

conventional generation flexibility isbecoming a key priority to operate thesystem, associated, when possible andnecessary, to a modulation of RESgeneration.

Recommendation from RES4Africa:enhancement of conventional unitflexibility jointly with possiblecontributionsfromVREgeneration.

Impact on the day-ahead powermarketTheprioritydispatchgranted toVREgenerationintheEuropeanmarketshas causedanon-negligibledistortionofthe day-ahead hourly market priceswhenever the amount of this energy issignificant compared with theconventional generation. Starting from2013 in some occurrences the Europeanpowermarketsrecordednegativeprices,that certainly are not cost-reflective, butare caused by the priority dispatchgrantedtoVREgeneration(Figure8).

Figure8-MarketnegativepricesrecordedinEuropeonJune16th,2013

Furthermore, the reduction of marketprices in daylight hours, caused by amassive PV generation, is compensatedby owners of conventional generators,particularly CCGT, by increasing theirbiddings in the late afternoon / earlyevening hours to recover their margins.Thistrend,alreadyevidentinthecurrentsituation, is estimated to continuewidening the gap between the daylightandeveninghourlyprices

Recommendation from RES4Africa:market design giving appropriate localprice signals forcing also RES plants toreact and actively participated to thepowermarkets.

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Dynamic stability and quality ofsupplyAlargeshareofRESgenerationisconnected to the system through staticconverters. As a consequence, a higherpenetration of non-synchronous RESgeneration entails a reduction of inertia,whosecontributionisessentialtosmooththe frequency deviations in the firstinstants after a disturbance. Thissituationisevidentintheinterconnectedcontinental European system where thesituations of non-negligible frequencydeviations and duration of frequencydeviations are increased over the lastdecade(Fig.5)

Figure9-MaineventsanddurationoffrequencydeviationsinEuropebetween2001and2012

Therefore, the conventional generatingunits are called to faster actions,particularlyprimaryfrequencycontrol,toavoid excessive frequency deviations. Ingeneral,thepresenceofnon-synchronousgeneration risks weakening the system,whichsufferslargerfrequencydeviationsat the occurrence of a disturbance. Inaddition, voltagedrops causedbya faultare spread over a very wide area,impacting quality of supply evenhundreds of km far from the faultlocation.

RecommendationfromRES4Africa:VREgenerators shall contribute as far aspossible to voltage control and reactivepower management as well as tofrequencycontrolfromtheinstantaneousreactionattheoccurrenceofafrequencyerror (concept of “synthetic inertia”) toprimary and secondary frequencycontrol.

Further, VRE generation shall notdisconnect facing large perturbations(e.g.:shortcircuits)clearedinthenormalintervention time of protective relays(conceptofLVRT/OVRT14capability).

TSO/DSOcoordination

In many cases, VRE generation isconnected to the distribution systemsleading sometimes to power flowreversal fromMVtoHV/EHVsystem.F.i.in Italy60%ofPV is installed inMVand20% in LV grids. Hence, an appropriatecoordination of power dispatch andvoltagecontrolpoliciesbetweenTSOandDSObecomesmandatoryinpresenceofamassivedeployment ofVRE.This entailsthe need for enhanced data exchangesand a better observability andcontrollabilityofatleasttheMVgrid.

Several aspects have to be addressedsuch as: confidentiality of exchangedinformation, accountability, investmentburden sharing between TSO and DSO,dispatching policy of generating unitsconnectedtothedistributiongrids.

Concerning this latter aspect, threepossibledispatchmodescanbeadopted:

(1) Extended Central DispatchingModel–Thetotalityofproductionunits,connectedatthetransmissionaswellasthe distribution levels, are enabled toprovide ancillary services anddispatched by the TSO acting as amarketoperator.(2) DSOs Local Dispatching Model –Underthis framework,theTSO,bothintheoperationalplanningandintherealtime phase, should no longer act oneach RES unit, but it directly acquiresancillary service in the ASM from RESresources connected to thetransmission grid and of course fromconventional units. RES power plantsconnected at distribution levels mustprovide ancillary serviceswhichwouldbe managed by DSOs. In this senseDSOs, acting as operator in the ASM

14LVRT:LowVoltageRideThrough;OVRT:OverVoltageRideThrough

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should not only procure resources tosatisfy its own needs at distributionlevel but also provide the TSO withresourcesforsystemservices.(3) Scheduled Program at HV/MVinterface Model – The DSOs areresponsibleformaintainingascheduledprogram at HV/MV interface while,differentlyfromthesecondmodel,theywill not offer ancillary services to theTSO.Recommendation from RES4Africa: toadopt a clear regulatory framework fortheTSO/DSOcoordinationinpresenceofRES generation installed in thedistributiongrids.

ConnectionrulesofRESgeneration

IntheearlystageofRESinstallations,theEuropean countries set their ownconnection rules. Thesewere usually farless binding than in the case ofconventionalgeneration.F.i.: inGermanyPV plants could disconnect when thefrequency error exceeded 0.2 Hz, whilstconventional generationwas required tostayconnectedinafrequencybandwidthof 47.5÷51.5 Hz. Similarly happened interms of voltage control where no faultride through capability was requiredfrom VRE generation. The massivedeploymentofVREgenerationinthelastdecade has led to the urgent need toreview the connection rules to avoid theriskofPVandwind farmsdisconnectioncascade at the occurrence of crediblecontingencies, leading eventually towidespreadblackouts.

To tackle this issue the Europeanassociation of TSOs (ENTSO-E) hasformulated common requirements forgrid connection applicable to allgenerators,includingthosebasedonRES[3]. In such a way the system securitymarginsaremaintainedalso inpresenceof a substantial penetration of VREgeneration. Unfortunately this measurehasbeentakenratherlateinEuropeanda non-negligible retrofitting effort onexistingRESplantshadtobeundertakento adopt their performances to the new

connection rules and this turned out tobe possible only on a subset ofgenerators.

Recommendation from RES4Africa: Toadopt since the beginning connectionrulesforRESgeneratorasfaraspossiblesimilar to those of the conventionalgenerators.

LessonslearnedfromEUmarkets

To encourage the transition to a moresecure, affordable and decarbonizedenergy system the EU adopted climateand energy targets for 2020 and 2030.Single Member States implementedRenewable Action Plans and ad-hocregulationstranslatingtargetsintoyearlyRES capacity planning and providingpolicy measures to sustain theirachievement.Renewable installed capacity started togrow exponentially with Europe leadingthe way towards clean energy. The EUcontributed significantly to theworldwide demonstration andcommercializationofprogressive(RETs),such as solar PV and wind power.Countries such as Germany and Italyheavily invested in the development ofRESbecoming, forexample, the firstandsecond country worldwide in terms oftotalsolarPVinstalledcapacity.In the early years of targets’ definition,singleMember States designed incentiveschemesable toget investors’ interestedeye. Incentives offered to support RESwere generous and the sectorimmediately experienced a significantboost, particularly true for solar PV. Inmost EU countries RES had (and stillhave) priority of dispatch, meaning thatalltheirgenerationisdirectlyfedintothegridwithallothertechnologiesfollowingsuit.All-inclusivefeed-intariffssetfor20years offered high returns to investors.As the speed of technological progressexceeded that of the political machine,incentiveswerenotimmediatelyadaptedto the decreasing cost of technologiescontributing in increasing publicspendingwith tariffs not being properly

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redesigned to reflect these fundamentalchanges.To avoid additional overspending, all-inclusive tariffs were progressivelyphased out and replaced with marketbased auction procedures where theincentive awarded is a function of theelectricity price. The structure of thesupport mechanism with mandatorymarket bidding aimed also at promotingthe integration of renewable generationwhich did not actively participate in themarket. The wholesale market wasmainly a pass-through for renewablesandtheywouldtypicallybidatzeropriceto get dispatched and receive theincentive on all their generation. Thechange in the incentivescheme lead toamore responsible, increasingly activemarketparticipationfromrenewables.Power Purchase Agreements (PPAs) didnot see a particular development inEurope. Schemes aimed at promotingtheir development (i.e. the GreenCertificates scheme placing a renewableenergy obligation either on conventionalgeneration or retailers/distributorsproved badly designed and left themarket longformanyyearsbeforebeingphased out). The presence of an EUcompetitivelawthatshiesawaythistypeof contract and liquid spotmarkets thatmake it easier for demand to find acounterparty did not promote PPAsdevelopmenteither.Asrenewablegenerationgrew,aseriesofissuesstartedtoemergenotonlymarket-wise but also from a physical networkperspective. Across Europe TSO’sconnectedREStothenetworkadoptinga“fitandforget”approach.Thismeantthatmost plants got connected regardless ofthe need for grid reinforcement.Most ofsolar PV capacity was connected to theMedium and Low voltage gridmaking itharder for the TSO to control theirgeneration remotely. This, in addition tothe typical intermittency of renewablesandtothechallengesinforecastingthemproperly, increased theneed forback-upcapacity and the cost for keeping thesystembalanced.ThedevelopmentofREinAfricamaynotfollow the textbook rules thathavebeen

forged by themore integrated Europeanmarkets, but it can be written learningfromtheirmistakesandsuccessstories.Aseriesof lessons canbe thusdrawnfromEUrenewablesdevelopmentbothfromamarketaswellas fromaphysicalprospective.1. RES deployment and gridenhancement should follow aparallel development path. A “fitandforget”approachisnotimaginableinSub-SaharanAfricawerethegridisone of the barriers to RESdevelopment, both from the TSO’s aswell as from the investor’sperspective. Regulated grid accessrulesandgridcostallocationschemesneed to be developed in parallelwithRES development plans. Tariffs needto be design in order to reflect thesecosts.Lessonsregardingthistopiccanbe learned from the UK experience,where plant’s connection to themaingrid depends on its capacity toaccommodate additional generationwhile a given plant operator may bealso contractually entitled to a griddevelopment by the grid operator.Moreover, for countries with aunderdevelopedgrid,theregulationofClosedDistributionSystems(CDS)andPrivate Networks is of fundamentalimportance. EU regulation couldprovide a basis for drawing rulesproper to the Sub-Saharan Africancontext where focus is more onelectrification. The use of closedsystems connecting for example RESgeneration plants and households,allowing them access to electricity,needs to be accompanied by thedefinition of tariffs allowing bettersecurityforinvestments.Grid extension and power poolingtakeshowever time.With645millionpeople in Sub-Saharan Africa lackingenergy access today, decentralisedsolutions will be required, notably inrural areas where stand-alone andmini-grid solutions are expected tomeet 70% of the demand of newlyconnectedcustomersoverthenext25

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years, according to the InternationalEnergyAgency.

2. Design of support mechanisms forrenewables shouldreflect thecostoftechnologies and the structure of theenergy sector leading to costreflective electricity prices for allcostumers, while protectingvulnerable consumers through tarifforfiscalshield.Drawingfromrelevantexperiences in EU power systems, anauction-based, technology-specificmechanismshouldbepreferred.A fundamental distinction can bemade between direct and indirectpolicy instruments. Direct policymeasures aim at stimulating theinstallation of RES technologiesimmediately. They can address eitherprice or quantity while providingsupport either for investments orgeneration.

Table1.TypeofdirectRESsupportmechanisms

Price-driven

Quantity-driven

Generationbased -Feed-in

tariff(fixedorvariable)-Premiumsystem(fixedorvariable)

-Tenderingsystemforlong-termcontractsTradableGreenCertificatesystem

Investment

based

-Investmentincentives-Taxcredits-Lowinterest/Softloans

-Tenderingsystemforinvestmentgrant

Support mechanisms that promoteactive market participation andservice offering have been largelyapplied in Europe. Feed-in tariffslinked to the wholesale electricitymarketpriceareanexample.Anotherimportant aspect in RES marketintegrationistheirparticipationtotheprovision of ancillary services to the

TSO, particularly relevant in systemswithahighshareofRESgeneration.Market integration is possible only ifRES have been equipped with thenecessary physical instrumentsallowing them to be remotelycontrolled and to respect orders sentbytheTSOandbasedontheirmarketoffering.While direct instruments aim atquickly boosting RES development,indirect instruments focus onimproving long-term frameworkconditions, providing investors withsecurityandsustainability.IntheSub-Saharan context a combination of thetwo together with a simplification ofauthorisationprocedureswouldallowforastructuredsectordevelopment.

3. The introduction of necessarylegislation to allow RES independentpowerproducer(IPPs),autoproducerschemes and access to third–partybuyers is another important topic.IPPsareamajorsourceofnewpowergenerationcapacity inAfricaalthoughregulation varies across countries. Inthe past years in Sub-Saharan Africathe structure of regulatory schemesseems to have favoured large andcentralized power projects therebysomehow precluding growth of smallandmedium-scalerenewables.In recent years, off-grid solutions arebeing increasingly sought after as thecosts of technologies fall. However,regulation on auto-production isfragmentedandthatofCDSinitsearlystagesinmostSub-Saharancountries.Micro-grids development in Africaremains an interesting concept,particularly when deploying REStechnologies in the form of wind orsolar power. Both these energysourcesarehowever intermittentandstorageofelectricityisstillcostly.Onesolution to this would be tosupplement the micro-grid with abiogas fuelled engine operating asback-up.Last year, at the East Africa PowerIndustry Convention in Nairobi a“round table” discussed the

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development of Africa’s powergeneration network and whether toopt for a centralised or decentralisedsystem. Parties agreed that a hybridsolution was the optimal one as itwouldallowforabetterintegrationofrenewablesinthesystem.A combination between centralizedand distributed power generationwould mean a more balanced andstable transmission network andreduced investment costs. However,regulatory uncertainty or lack ofenforcement isamajordraw-back forinvestments.

ThedevelopmentofSub-SaharanAfrica’spower generation infrastructure is stilllargely a blank sheet of paper and themaximisation of valuable energyresources and their proper integration,both from a market as well as from aphysicalperspective,willplayakeypartintheregion’sfuturedevelopment.

References

[1] B.Cova. A.Venturini. “CIGREProceedings SC C5 Pref. Subject 1Question 1”. CIGRE General Session2012

[2] R. Kabele. B. Nemecek. J. Prochazka.“The impact of uncoordinateddevelopment of photovoltaic powerplants on electricity market in CzechRepublic”. CIGRE General Session2012.paperC5-104

[3] ENTSO-E, “Network Code forRequirements for Grid ConnectionApplicable to all Generators”, March2013,Bussels



Environmental,SocialandGovernanceinRenewable

EnergyProjectsinEastAfrica

FactSheetpresentedby

Mike Everett,ManagingPartner,ERMEastAfrica, Stuart Heather-Clarke,PowerSectorLeadandPartner,ERMSouthernAfrica

Abstract

Interest in and support for Renewable Energy (RE) projects to address the energysupplygap inEastAfrica is growing.Opportunities for investorswithin this spaceareplenty but come with unique challenges that require careful evaluation early in theproject lifecycle. The focus of this paper is specifically on the non-technical risksassociatedwithsuchdevelopments,relatedtoenvironmentalandsocialchallengesthatrequire as careful evaluation as do financial and technical risks to avoid potentiallysubstantialcostsandcomplications.

Background

Renewable Energy is rapidly becoming acost-effective solution for overcomingenergy supply challenges faced withinEastAfricaandindeedelsewhereinAfrica.

InKenya forexample,withaGDPgrowthofbetween5and7%from2004to2014,peakpowerdemandgrewfrom867MWto1,468MW, at approximately 8%per year.Powerdemandprojections,asprovidedinKenya’s Vision 2030, indicate a peakdemandprojectionin2030of26,500MW.Toaddresstheenergygapandtomeettheprojected demand for power, theGovernment of Kenya (GoK), in itsupdated Least Cost Power DevelopmentPlan (2013 to2033),promotesgrowth inthe mix of energy generation capacity,withafocusonrenewables,suchaswind,solarandgeothermal.

In Uganda, GDP growth of around 6%during thepast twodecadeshas resultedin a growth in electricity demand ofapproximately10%perannum.Accesstoelectricity at national level in Uganda isvery low, with 15% of the populationhaving access to electricity in 2013; thisfigure is even lower in the rural areas atapproximately7%. Currently,about90%of the total primary energy consumptionin Uganda is generated through biomass,including firewood, charcoal and cropresidues,whichresultsindeforestationatalarmingrates.

Given theseexamples,an important focusarea for investors inEastAfrica is powergeneration; specifically the private sectorfunding of RE power generation.Opportunities for Independent PowerProducers (IPPs)areexciting,butarenotwithout their challenges. This is because

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although IPPs are well-positioned toassess both financial and technical risks,non-technical risks, the subject of thisPosition Paper, are often not adequatelyassessed, or are considered late in thetransaction or development cycle.Experience confirms that not consideringandmanagingtheserisks(whichrelatetoenvironmental and social aspects) duringtheearlyplanningstagesof suchprojectsmay result in significant costs,complications, unforeseen changes toproject design and delays for projectdevelopers.

Objectives

Greaterawarenessofnon-technicalriskisbecoming increasingly important aseffectivemitigation of environmental andsocial risk is vital if East Africa is tocapitalise on current investor appetite inthepowersector.

In addition, better understanding of suchrisks will help to minimise communityimpacts and enable communities tobenefitdirectlyfromsuchinvestments.

Criticalities

Thereisscopefor investment inahostofRE power projects in East Africa;generatingnotonlypowerbut significantrevenuestreams.Butbeforecapitalcanbecommitted,risksmustbeassessed.

Some painful lessons were learnt at thebeginningofthenewmillennium.Somuchsothatmajorprovidersofproject financeare today unwilling to commit fundingunless non-technical risk is thoroughlyassessed and appropriate mitigationstrategiesareputinplace.

Environmental risks are relatively easilyassessed, although in hydropowerprojects for example, the calculation ofenvironmental flows is not an exactscience, leading often to amore give andtake approach between ecologists andproject developers. With social riskshowever, thesearecompounded inAfrica

asthereisgenerallynostandardapproachin addressing these risks. Another factorthatwarrantstheattentionoffundersandproject developers is the growingstakeholder demand in many emergingmarkets that commercial interests notonly meet legal and regulatoryrequirements, but establish a ‘sociallicence to operate’ through on-goingcommunity investment. TerminologydiffersacrossAfrica,butthereiscommonfocusonlocalcontent,skillstransfer,localprocurement and recruitment, andcommunitydevelopment.

It is easy to assume that the higherpurposeofimprovedelectricityaccessfora country will be so obvious that localcommunity buy-in is assured. Thisstrategicview–whilevalid–ignoreslocalpriorities and concerns. Typically, REprojects in East Africa are developed inremote rural areas, with povertyentrenchedinmanyoftheseareas.Accessto electricity is only one area of need.Communities near to project sites mayalsohavelimitedaccesstoschools,water,sanitation,healthcareandsocialservices.Each site is different so a standardisedapproach is simply not possible.Therefore,compliancecannotbeachievedby simply ticking a series of well-establishedboxes. Anenvironmentalandsocial impact assessment (ESIA) is acrucialcomponentoftheprocess,butitisjust one element in a complex set ofvariables.

Themereprospectofprojectdevelopmentis enough to generate numerousexpectations around social servicedelivery and job creation withinneighbouring communities. Therefore,stakeholder engagement, face to face andone to one, is necessary to understandexpectations and establish priorities.Simultaneously, fearandsuspicioncanbearoused. Will development necessitateresettlement? What about use rights to

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various paths and water resources? Willgraves and burial sites be disturbed?Social risk mitigation entails continualcommunication to manage expectationsand fears. Interaction must be constant,honestandconsistent.Thedevelopmentalaim may be to generate power, but thelocalaimisto instil trust. Governmentinthenationalcapitalmaycreatethemarketfor electricity consumption byguaranteeing predictable pricing over 20years, but they can rarely guarantee totalcommunity acceptance at a remote ruralsite.

It is also important to realise that long-termcommunitysupport isunlikelytobesecured by a once-off investment in localservices. Localneedswon’tgoaway;nordoestheneedforasympatheticcorporateresponse. The social licence to operatecomesupformetaphoricalrenewalmonthafter month, year after year. On-goingengagementisrequired.

Experienceshowsthatbiggainscanoftenbeachievedbyrelativelysmallcommunityinvestments. It is also critical to ensurethat community institutions and localgovernment are empowered to run andmaintain installed facilities. Africa islittered with abandoned communityprojects that have failed because of thelack of a plan for their upkeep shortlyafterbeingcommissioned.

Mitigation methodologies have beenestablished by several internationalbodies, including the Equator Principlesand the International FinanceCorporation’s Performance Standards.These methodologies provide goodguidance but are often not easy toimplementandcostbothtimeandmoney.

Recommendations

REdevelopers need to domore than justaddress theirdirect impacts; forexample,byimplementingcommunitydevelopmentprojects that go beyond mitigating ESIA

impacts. Developers are well-advised toimprove their understanding ofenvironmental and social risks, thebusiness case for a social licence tooperate and the evolution of corporatesocial investment programmes, in Africaandelsewhere.

Those developers who take their socialand environmental responsibilitiesseriouslyarenotonlypositionedtoavoidunnecessary risks and unforeseen costs,they also improve the potential for long-term profit and enhanced return oninvestment(ROI).

Social and environmental risk deservesproactive scrutiny from the outset andthroughout the project lifecycle, all theway through to decommissioning. Theserisks affect site selection, access tofunding, ROI projections, operationalefficiencies, actual investment returns,corporate reputation and companyvaluation.Itisthereforeintheinterestofdevelopers that they identify key non-technicalrisksasearlyaspossibleintheirinvestment/projectdecision-makingcycleand manage them through a structuredEnvironmental and Social ManagementSystem; this is not only a requirement ofmanyinternationallendersbutsupportsastructuredapproachtoriskmanagement.

Risk management of this scale andduration is a strategic imperative. In fact,itisaleadershipissue.Issuesaffectingthelong-term success of major capitalprojects cannot be delegated. Theleadership team has to take ownershipand demonstrate its commitment to allstakeholders.


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RegulatorystudyforMinigridsystemdevelopmentsintheEasternAfrica

Anna Paola Minervini, Enel Green Power Spa, Paolo Gentili, PwC, Lorenzo Facco,D'Appolonia,LucaPiffer,Enerray,ChiaraAquino,ERM

Abstract

RenewableMini-grid systems have a great potential tomeet energy demand in ruralareasandplayacentralrole inreaching theelectrification targetsetbyGovernments.Despitethepresenceofapolicyandaregulationsupportingminigriddevelopment inall EasternAfrica countries, the lackof a dedicated regulatory frameworkhinders theactive participation of private investors in the sector. Governments play a significantroletoacceleratetheirparticipationaspartnerinthemissionofmeetingelectrificationtargets and therefore should create a conducive environment to attract and facilitatetheirinvolvement.Theregulatoryframeworkshouldbeclear,reliable,effectiveaswellastransparent.Aregulatoryframeworkincludingfewkeyelementswouldcontributeinde-riskingthe investmentsandattractan increasingnumberofcredibleplayers in therural electrification activity, guaranteeing access to electricity to a larger number ofpeopleinasustainableway.

Background

Eastern Africa region is extremelyabundant in all Renewable EnergySources (RES)s, though clean energycurrently represents a very limitedpercentage of the national productions(i.e.36%inKenya,5%inEthiopia,1%inTanzaniaandtotallyabsentinUganda

andRwanda15).

The GDP in the region, more thandoubled over the last decade whilst thepopulation grew by 80% over the sameperiodsopushingtheRegionalelectricitydemand to grow at a sustained path of

15Figuresexcludelargehydrodata.


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around 10% per year, trend that isexpectedtocontinueupto2020.

Asoftodayover0.6billionpeopleintheSub-Saharan African countries have noaccess to electricity. Among these,around 200 million people live in theEasternAfricancountries16,whichrecordan average national electrification rateslightly above 20% with a significantconcentration in urban areas. Indeed,rural electrification ratedoesnot exceed7%.

This, in combination with the fact thatever-growingpopulationismostlysettledin isolated rural communities 17 andexistinginfrastructuresareinsufficienttomeet current consumption needs,highlightsthatEasternAfricaisfacingahuge electricity demand challenge.Therefore, a specific Governmentintervention is needed to implementreliable and affordable electrificationplans.

In truth, many countries are willing toprovide universal access to electricity inthe short andmedium run by deployingrenewablespoweredplantsandtargetingpeoplelivinginsuburbanandruralareastoo.

Increase access to electricity, especiallyin rural areas, through the extension ofthe national grid, does not alwaysrepresentthemostefficientway,notonlyunder theeconomicperspectivebutalsoin practical term, because ofmorphological characteristics of theterritories.

In this context, off-grid renewablesystems can provide a valuable andeffective option to increase the localelectricity access. In the recent past

16EasternAfricaregionincludesEthiopia,Kenya,Uganda,TanzaniaandRwanda.17In the selected countries, rural population representsinaverageover70%oftotalcurrentpopulation.

renewable solutions gained incompetitiveness as compared totraditionalenergysourcesmainlythanksto technological advancements and theyproved to be cheaper, cleaner and abetter solution to produce electricitywithout reliance onimported/transported fuels. Inparticular, the recent cost declines insolar photovoltaic and storagetechnologies provide cost-effectiveoptions for addressing energy needs inremote areas where on-gridelectrification is technically oreconomically difficult to achieve.However, the development of off-gridinitiatives would not be possible if notsupported by an appropriate nationalregulatoryframeworkfromlicensingtooperationandtariffdetermination.

Overviewofregulatoryframeworksforoff-gridsystemsinEasternAfrica

Mini-gridshaveagreatpotentialtomeetdemand in rural areas and to play acentral role in reaching the target ofuniversal electricity access in a timelyand sustainable manner. In order toaccelerate such development it is veryimportant to recognize the lack ofdedicated regulatory framework and theabsenceofde-riskingmechanismsas themainobstaclesfortheprivatesector.

In all Eastern African countries,Governments aim to achieve100%ruralelectrification and have preparedmultiannual dedicated Master Plans orspecific electrification programmessetting intermediate targets. Nationalplans are absolutely crucial, but theyshould be accompanied by operationalaction plans defining clear alternativeoptions according to economicconvenience: main grid extension,distribution grid densification, mini-gridandoff-gridprojects.

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Indeed, grid extension makes economicsenseonlywhentheassociatedcostsarereasonable, while mini-gridsopportunities should be exploited invillages where grid infrastructure costsaretoohigh.

Even though the realization ofmini-gridprojects is generally allowed by thecurrent regulations, providing in somecases simplification and/or exemptions,specificoperationalrulesaremissingandthereforeuncertaintiesstillpersist.

As an example, in Tanzania, as per thecurrent regulation for Small PowerProducers2016,ruralprojectsbelow100kW are exempted from licensingrequirementsandonlyneedtoregistertothe Regulatory Authority (EWURA).These projects may sell electricitydirectly toretailcustomersatnegotiatedtariffs without EWURA approval.However, projects above that thresholdneed to follow the standard licensingprocedure and obtain generation anddistributionlicenses.

InKenya,theAuthorityissupportingthedevelopment of mini-grid in rural areasand has granted to a private player thepermittogenerate,distributeandsupplyenergy to 100 rural villages in thewesternregionof thecountry, throughasimplified application process, allowedforproject<3MWaccordingtheEnergyAct 2006. This simplified process forsmaller projects is not contemplatedunder the new Energy Bill 2015,thereforethe introductionofadedicatedframeworkformini-gridprojectsinruralareas, on which Government is activelyworking,isgreatlywelcomed.

An example of a specific regulation onmini grid is the one issued in 2015 inRwanda to streamline the developmentofruralinvestmentsthroughasimplifiedElectricity License application process(for projects up to 1 MW) and the

issuance of a combined generation,distribution and trade license providingalso and exclusive right of supply in theselected area. Clear rules are also set interms of required documentation,approval process, lengthof license, tariffsetting and option in case of main gridarrival.

Financialandeconomicaspectsalsoplayan important role in promoting thedevelopmentandsafeoperationofmini-gridsfromprivateplayers.

Generally, theassumedtariffmodelaimsto allow a “reasonable” return for theinvestor through a “fair tariff” for endusers, allowing the recovering ofoperating costs, depreciation on capital,debt payments, plus a “reasonable”return on capital. For this reasonAuthority’sneedtoapprovetheproposedtarifftoconsumers.

In Uganda, for example, the RegulatoryAuthority issues every 3 years a priceschedule for ruralelectrificationsystemsthat contains also the formula forindexation. Exemption from theapplication of the regulatory priceschedule may be requested to theRegulatoryAuthorityanddulyjustified.

Investors return is of course strictlyrelatedtothetimeneededtorecovertheinvestment,given thehighupfrontcosts.For this reason, guarantees should beprovided to the investor tooperate foraminimum period of time and clear exitoptions should be set up in advance incaseofarrivalofthemaingrid.

As a matter of example on this crucialtopic, current applicable regulation inKenyadoesnotprovideanydetails,whileRwanda and Tanzania foreseesalternative options (i.e. convert thelicense for remaining period in SmallPowerProducerLicenseandSmallPowerDistributionLicenseornegotiatethesaleof assets and rights) but operational

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aspects are not always clear and/or notprovideenoughprotectiontotheprivateinvestor (i.e. price definition, minimumtiming,etc.).

The role of Governments andnational Authorities in promotingdevelopmentofoff-gridsystems

Governments play a significant role toacceleratetheparticipationoftheprivatesector as partner in the mission ofmeeting electrification targets andtherefore should create a conduciveenvironmenttoattractandfacilitatetheirinvolvement.

The key roles that the Governmentshouldplayare:

i. Set up a clear and reliableregulatory framework to create a rightbalance between affordable prices forconsumers and reasonable return forinvestors

ii. Provide assistance andsimplification to investors in permittingandlicensingprocesses

iii. Cooperateinordertosupporttheidentification of areas of the countrywhere the program can be economicallyimplemented (i.e. morphological data,demographic data - volume, density,income- identification of communitieswith potential economic development,potentialanchorcustomers).Asamatterof fact, extension of the area, itspopulationdensityandconsumptionloadare key drivers for the economicalsustainability of the mini-grid businessplan, given the significant impact of thecostforbuildingthedistributionnetworkon the overall capital expenditure of theproject

iv. Gather and provide informationonthepresenceofinterestingmarkets.Inthis context, Rural ElectrificationAgencies (REA) could perform pre-

feasibilitystudiesandpublicthemsothatthe private sector can see where theinterestingoptionsare

v. Provide clarity on grid extensionplans in the medium/long term andcooperate at central and local level toidentify villages and communities notexpectedtobeservedbythenationalgridsince, for a private investor, timing isveryrelevanttoevaluatetheinvestmentsreturn. These plans should be reliableand abrupt change of plans should beavoided

vi. Identifyclearrolesandmandatesamong all the involved stakeholders (i.e.Governments, Transmission SystemOperator, Distribution System Operator,Rural Electrification Agency, ElectricityAuthority, Local authorities andcommunities etc.) and cooperation atcentralandlocallevel.Anexcessivelevelof regulatory complexity, overlappingresponsibilities may result in unclear orcontradictory regulations or lead to aregulatory vacuum, which may put on-holdinvestordecision

vii. Support the creation of externalenabling conditions such as localcommunities awareness and access tomicro-financing, in order to increase thewillingnessandabilitytopay.Investmentpromotion measures are needed toattract both domestic and foreigninvestors. In parallel, there is a need toraise awareness among local financialinstitutionsaboutthegrid-connectedandoff-gridrenewableenergymarket.Publicfinancingcanbemosteffectiveifusedtoreduceriskperceptions

Regulatoryrecommendations

Asoundpolicyandregulatoryframeworkis a prerequisite for the deployment ofmini-gridsprojects tocontributetoruralelectrificationandenergyaccess.

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The regulatory framework should beclear, reliable, effective as well astransparent in order to support theincreasing access to electricity in asustainableway,ensuringhighqualityofservice for community whilst reducinginvestmentrisks.

Key recommendations for an effectiveregulationwouldbe:

i. Streamlined land acquisition andpermitting procedures, especially formicroandminigrid(<100kW)

ii. Standard set of permits andclearance required (i.e. DistrictAuthorizations, environmental impactassessment and social impactassessment,applicationfees,etc.)

iii. Creation of a single windowsupport channel interface (one-stopshop) to process the above mentionedpermits with clarity on responsibilitiesandtimeline(i.e.issuanceandfacilitationofdesiredGovernmentorders,necessarycertification and authorization,clearances and right of way, otherapprovals, provide information on taxesandexemptionsetc.)

iv. Issuance of a combinedgeneration, distribution and supplylicensefortheminigridoperator

v. Guaranteed exclusive area ofsupply for the mini-grid operator,confinedtothetimenecessarytorecoverinvestmentcostsandreasonablereturns

vi. Clearexitoptions incaseofmaingrid arrival, after a minimum period ofoperation, defining duties and rights oninvolvedparties

vii. Clear agreements with the localDistributorNetworkOperatortomanagethepossiblecoexistenceof themaingridandtheminigrid

viii. Technical & Safety standard andminimum Standard of Performance toallow for flexibility and innovationwithoutcreatingapprovalbottleneck

ix. Clear rules for managingelectrification programs carried out byRural Electrification Agency overlappingwithprivateprojectsdeveloping

x. Flexible tariff setting rules andfinancing mechanisms to ensurereasonable return to investors andaffordablepricesforconsumers

Aregulatory framework includingall theabove elements would contribute in de-riskingtheinvestmentsandattractmoreand more credible players in the ruralelectrification activity, guaranteeingaccesstoelectricitytoalargernumberofpeopleinasustainableway.

A sustainable and productive use ofenergy to a larger portion of peoplewould represent a huge benefit toeconomicgrowthofanycountry.


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ScalingupRenewableEnergyinSub-SaharanAfrica

BarriersandRecommendations

LorenzoFacco,D'Appolonia,BarbaraRossi,SAET,AntonioZingales,SAET

Abstract

The extent to which Renewable Energy (RE) can contribute to efforts to address theenergychallengesfacingAfricaanditsroleinmeetingAfrica’senergydemandhasbeenundermined by bad experiences, misinformation, technology push and consequentnegative perceptions; certain technologies have so far been disseminated incircumstances that compromise their further adoption, as beneficiaries have beendissatisfiedandthemismatchbetweenenergyserviceprovisionandincomegenerationtomeetthecostofserviceshasbeenparticularlydisadvantageousforthepromotionofRE.

The main goal of the present paper is to spot the existing barriers preventing theextensionoftherenewableelectricitycoverageoftheareaandidentifyahighlevelsetof recommendations to facilitate the deployment of Renewable Energy Technologies(RETs)with the final aim of improving the quality and stability of energy supply andthereforeimprovelivingconditionsintheurbanandremoteareas,aswellasfosteringthe on-going efforts made by the national Governments of the region and by theinternationalplayerstowardsthesustainableeconomicdevelopmentandachievementoftheambitiousgoalssetbytheUnitedNationsMillenniumDevelopmentgoals.

Furthermore, based on the experience of energy solutions providers at least threecommonsituationsneedtobefacedintheelectrificationofemergingcountries:

• Industrialconnectiontoexistinghighvoltagegrid;• Voltagedipsinindustrialplantsconnectedtoweakgrid;• Off-gridgenerationwithhybriddiesel-RES.• Hydropower production increase linked with the enlargement of an existing

universitycampus.


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SuccessstoriesdeliveredintheAfricancontextconcerningtheabovecircumstancesaregiveninthepresentpaperinordertodisplaythemainlessonslearnt.

TheRenewableEnergySectorinSub-SaharanAfrica

Africa is endowedwith a huge potentialforthegenerationofRE;thecontinent,infact, has approximately 285 GW ofestimated potential for Hydropower and15 GW for geothermal, it receivesabundant solar radiation through theyearwithmostof thecontinentenjoyinganaverageofmorethan320days/yearofbright sunlight with irradiance levelranging from 2,000 to 2,500 kWh/m2andsomeofthecoastalandinlandareashave available significant wind energyresourcesspecifically in theSub-Saharanareawhereit isestimatedapotentialforgenerationofapproximately13GW.

In addition bioenergy, mainly accountedforbythetraditionaluseofsolidbiomassin the residential sector, dominates theenergy mix of many African regions,especially the Sub-Saharan, withestimates from different studiesindicating the potential availability by2020ofup to13,900PJ/yr. fromenergycrops, up to 5,400 PJ/yr. from forestrybiomass and approximately 5,250 PJ/yr.fromresiduesandwaste.

However, these energy sources remainlargely underutilized, for instance only5% of the continent’s potential ofhydropower and less than 1% of thegeothermal one have been exploited,undermining the efforts towards theeconomic growth and the sustainabledevelopment of the African continentdisplayed by local Governments andinternationalplayers.

A closer look to the energy data of theSub-Saharan region shows that despitetheareaaccountsforapproximately15%ofthetotalworldpopulationtheregional

energy demand represents less than 4%of the global one. It has therefore to benoted that the lack of reliable andaffordable energy supply remains aserious impediment to economic andhumandevelopment inmostpartsoftheregion, the energy sector of whichcontinuestofacecriticalchallengesbeingcharacterizedbylackofaccesstomodernenergy services (especially in ruralareas), poor infrastructure, lowpurchasing power, low investments andover-dependence on traditional biomasstomeetbasicenergyneeds.Furthermore,energy use across the different sectorsremains quite inefficient, with thecontinent still having the highest energyintensityperunitofGDP.

Recent trends indicate that over 60% ofSub-Saharan Africans will still not haveaccess to electricity by 2020 andtraditional biomass, despite theassociated environmental, social andhealth problems, still remains the mainsourceofenergy,accounting for70-90%of primary energy supply in somecountriesandasmuchas86%ofenergyconsumption.

In addition to low levels of access toelectricity throughout the region, theenergysectorisharassedbylowcapacityutilization and availability, deficientmaintenance and high transmission anddistribution losses ranging from 15 percent to 45 per cent of electricitydistributedwhichmakepowerutilitiesinAfrica hardly viable from a commercialperspectiveastheychargetariffsthatarebelowcosts topromoteaccess toenergyby the poor majority. As a result, theutilitiesarenotable tomobilizeexternalcapital for maintenance and expansionprojects.

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In this framework, the attraction ofprivatesectorisbeingthefocusofpowersector reform orientation, therebyprioritizing profit while neglecting theneed to electrify rural areas and poorerurbanneighbourhoods.

ObjectivesofthePaper

TheextenttowhichREcancontributetoefforts to address the energy challengesfacing Africa and its role in meetingAfrica’s energy demand has beenundermined by bad experiences,misinformation, technology push andconsequentnegativeperceptions;certaintechnologies have so far beendisseminated in circumstances thatcompromise their further adoption, asbeneficiaries have been dissatisfied andthe mismatch between energy serviceprovisionandincomegenerationtomeetthecostofserviceshasbeenparticularlydisadvantageousforthepromotionofRE.

Themaingoal of thepresentpaper is tospot the existing barriers preventing theextension of the renewable electricitycoverage of the area and identify a highlevelsetofrecommendationstofacilitatethedeploymentofRETwiththefinalaimof improving the quality and stability ofenergy supply and therefore improvelivingconditionsintheurbanandremoteareas, as well as fostering the on-goingefforts made by the nationalGovernments of the region and by theinternational players towards thesustainable economic development andachievementoftheambitiousgoalssetbythe United Nations MillenniumDevelopmentgoals.

Furthermore,basedontheexperienceofenergy solutionsproviders at least threecommon situations need to be faced intheelectrificationofemergingcountries:

• Industrialconnectiontoexistinghighvoltagegrid;

• Voltage dips in industrial plantsconnectedtoweakgrid;

• Off-grid generation with hybriddiesel-RES.

Success stories delivered in the Africancontext concerning the abovecircumstances are given in the presentpaper in order to display the mainlessonslearnt.

Barriers to Renewable EnergyDevelopmentinSub-SaharanAfrica

Although major technical and financialbreakthroughs have been achievedinternationally with respect to RE,besides large hydropower theircontribution toAfrica’s energy problemsremains minimal. Major barriers to thewiderdisseminationofREontheAfricancontinent will need to be overcome.These barriers can be categorized asfollows:

• policy,regulationandinstitutional;• informationandtechnicalcapacity;• financial.

Policy,Regulation&Institutional

Consistent policy and regulatoryframeworksare central to the successfuldissemination of RE in technologies inSub-Saharan Africa, but in general suchframeworks are absent in most of theAfrican countries and where suitablepolicies for promoting RE do exist, theirimpact is weakened by a lack ofenforcement mechanisms which makesvery challenging for the private andindustrial sector to operate effectivelyandexpandtheirREinvestments.

Furthermore, the lack of policy focus onthe RE is the relatively low budgetaryallocations at Country level for thepromotion of RE in many Africancountries;themajorityofenergyprojectsarethereforeexternallyfinanced.Despitethe recent development of several RE

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policies in many developing countries,including African ones the successfuldevelopment and deployment of anytechnology, especially relatively newones such as RET, need severalinstitutions covering the differenttechnical, economic to market aspects;this institutional capacity is not alwaysavailableinmostpartsofAfrica.

Moreover ancillary technical institutionsfortesting,operationandmaintenanceoftechnologies have a limited presence inAfrican countries especially withreference to National Systems ofInnovation(NSI)whichhaveprovedtobecrucial in increasing technologicalreceptivity in most developed andemergingeconomies.

Informationandtechnicalcapacity

Ensuring secure sustainable commercialsuccess of RE depends on institutionalandhumancapacitiesaswellasbusinessandmarketcapabilities.

A major technical barrier is theunavailability of accurate and well-organizedREresourcedata.ThedataonRE,especiallyforsolarandwind,areveryscantyandthepoortechnicalskillsinthecontinent affect the development ofrenewabletechnologies.

Inadequate domestic technical skillsaccount for poor maintenance ofimportedsystemsandlackofprovisionofadequateafter-salesservice.Hence,thereis need for high and middle leveltechnical manpower in businessdevelopment, manufacturing and overallmanagement.

The public sector also lacks adequatepersonnel to undertake effectivemonitoringandevaluation.

Financingandinvestments

Scenarios developed by InternationalFinancingInstitutionssuchastheAfrican

Development Bank has estimated atapproximately US$ 550 billion the totalinvestment required to ensure universalaccess to reliable and increasinglycleaner electric power inAfrica by 2030thusestimatinganaverageinvestmentofapproximatelyUS$30billionperyear;atpresent the total funding to the energysector in Sub-Saharan African hasaveraged only about US$ 2 billion everyyear thus showing how serious are thechallenges which shall be faced tomobilize financing for an effectivedeployment of the RE potential in thearea.

Moreovermany economies in Africa areperformingbadlyandthisonlymakesthesituationmoredifficultwhenseen in thecontext of on-going context of the on-going food and financial crisis, highvolatilityinoilpricesandclimatechange.

Lacking of government support, theprivate sector remains a small playeroverallandmoreprevalentinsmall-scaleRE systems; whereas the bulk of theprivate sector financing is “Foreign” andmostly linked with internationalfinancinginstitutionssupportingthelocalbeneficiaries governments while on theother side it is registered a scarcesupport from financial institutions suchas insurance companies and brokerinstitutionsthatassisttoreducetheveryhigh transaction costs of cleantechnologiesinAfricancountries.

Recommendations

Major technical progress and policydevelopment along with financial andinstitutional innovations are needed toscale up the production of RE in Sub-Saharan

AfricawhereitshouldberecognizedthatRETs are at different stages ofdevelopmentanddeployment.Therefore,inorder tobeeffective a comprehensivedeploymentstrategyshouldgivepriority

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to technologies that will deliver on thehugeand immediateenergyneedsof thecontinent.

Inthiscontext,thesettingofpolicieswithclear targets are crucial in facilitatinginvestments in RE and so are also theadoption of policy instruments such asquotas,feed-intariffs,capitalsubsidiesorrebates, investment or other tax credits,tradable RE certificates and publicinvestmentloans.

In developing countries, feed-in tariffs;capital subsidies, grants or rebates; taxcredits and public investment loans ortax credits, have all been appliedsuccessfully.

There region is generally characterizedby very high transaction costs, whicharise from several factors includingrelatively smallmarkets forRE resultinginfewsuppliersandmonopolisticprices,thetimelagbetweenprojectformulation,conceptualization and actualimplementation, and the poormanufacturingbasethatmakestheretailpricefarhigherthanthecostprice.

Several national and internationalpolicieshavesofarbeenusedtopromotetheuseofRETsanditisclearthatpolicysuccessesare likely tobeachievedwhenused in combination and adapted to thelocal, regional or national situation.Basedontheseexperiences,policiestobeconsidered for implementation at thenational level are: regulation measures(i.e., performance standards, equipmentstandards, etc.); subsidies and financialincentives(feed-intariffs,rebates,grants,loans,productionincentives,governmentpurchasing agreements, insurance) thatare targeted and have a clear sunsetclause; voluntary agreements (e.g.betweengovernmentandprivatesector).Atregionalandsub-regionallevels,policymeasures that have been successful andcan be considered for development in

Africa include focused use emissiontargets and trading systems; technologyco-operation; financial systems (ODA,FDI,commercialbankloans).Inselectingappropriate policy options, it isimportant that these policy options beevaluated for their environmentalimpacts and cost effectiveness;distributional aspects; institutionalfeasibility; and suitability to the localcontext. In addition, RE policydevelopment should be well integratedintopoliciesofothersectors

Usingwelldesignedpoliciesandstrongerinstitutions can encourageRE producerstoselltheirproductstothenationalgrid,provided the revenue collected coversthecostandinterestpayments.However,smaller-scaleproducersmayneedspecialpoliciessuchasusingdedicatedfundsorprojectbundling.

Off-grid renewable energy systems needpolicy attention such as customerfinancing to protect them from highupfront costs. RE markets can bepromoted if governments take decisionsto promote investments in RE forpowering social infrastructure such asschools,medicalcentres,hostelsetc.

Energymarketsatthecountryleveltendtobetoosmallandfragmentedtoattractmeaningfulinvestments.Assuch,thereisanincreasingdriveforintegratedenergymarkets at the sub-regional level, asdemonstrated by regional projects suchas power pooling and energy accessprogrammes that are led by RegionalEconomicCommunities(RECs).

The continent should develop regional,sub-regional and national strategies toacquire renewable technologies bydeveloping theirR&D capacity and skillsof technology adaptation anddevelopment and manufacturingcapacity. African countries should nowenter into two-way relationships with

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technology suppliers using differentinstruments including co-production,standardization of components acrossmodels, modularization and exploringnewformsofsub-contracting.

Furthermore,policieswillberequiredtofostertechnologytransferandalsoassistto build capacities. These will includethose that promote and strengthen thedomestic knowledge base, stimulatelearning and innovation, and create thesupport structures to sustain theseprocesses.Anothersetofpolicieswillbethosethatcreatefacilities forstartingupsmall and medium-sized enterprises, asthese will prove useful for sub-contracting.

Specific skillsare required foroperating,modifying, producing and innovatingrenewable energy and energy efficiencytechnologies.InselectingandprioritizingRETstofocuson,Africaneedstoconsidertechnological maturity, reliability andfinancial feasibility. As such Africa is, inthe immediate term, better offconcentrating on RETs that are matureand will have immediate and directbenefits on the energy situation of thecontinent.

There is a need to address thefluctuations and intermittency of energysupply from RETs through integratedsystems,poolingofseveraldecentralizedrenewable energy systems to formenergy generating clusters so that thegrid is always supplied with minimumpower in case of failure by one system.Equally important is the need to usemodern storage technologies to addressthe intermittency of power generationfromRETs.

African countries can exploit newfinancingoptionstoimproveinvestmentsinREinthecontinent.Thenewfinancingoptions include: mobilizing localfinancing, aid and grants; foreign direct

investments; carbon financing, GEF, etc.Local sources of funding that should beconsidered includepublicofferof sharesby power utilities to implement specificprojects, use of pensions funds toleverage local bank financing for newprojects, use of emerging local bondmarkets.

SuccessStories

The challenge for access to modernenergy in Sub-Saharan Africa is reallyhuge because even the average rate ofhouseholds with access to an electricitysupply isgrowing; thenumberofpeoplewithout access to electricity has actuallyrisen due to population growth. In theelectrification process both thedevelopment of the grid and ofgenerating facilities are critical andRenewables can have a role forgeneration, but also – together withEnergy Storage - to overcome gridcapillarity in OFF-GRID solution.Renewables and Storage technologiesoffer many advantages in Sub-SaharanAfrica, but widespread deployment willrequire strong endogenous innovationcapabilities: this is the challenge ofRES4AFRICA.

CASE1:MOZAMBIQUEIndustrialconnectiontoexistinghighvoltagegrid

Thedeploymentof industrial facilities inan emerging country normally requeststosolvefeedingproblem,beingnecessarysafe and reliable electrical power toensure industrial operation andproductivity. This is the case of cementplant of Cementos de Beira in Beira,Mozambique, requiring 10MW powerfeeding. Being Beira, the second city ofMozambique, provided with electricityfromnationalgridoperator,thecasewasreducedtoensuringaproperconnectiontotheexistinggrid.

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An initial step was required tounderstand local grid code, requiring fortheplant a direct connection to thehighvoltagegridwhile inaEuropeancontexta simple medium voltage connectionwould have been required.Oncedefinedthe need of a direct connection betweenthe cement plant and a 110kV line astandard solution based on twosubstationswasadopted.

From a technical stand point the mainneed was then to guarantee theconnection of the cement plant avoidingasmuchaspossible inefficiencieson theline and foreseeing the possibility of aconnection upgrade in case of furtherfeeding points on the line. More thanfrom a technical stand point the criticalpart of the project was related to localconditions that resulted to be the mostchallenging part to afford. Lack ofinfrastructuresresultedintransportationissues that together with difficulties inpurchasing local materials requiredadditional logistic efforts. In addition,lack of specialized local manpowerrequired to include proper training andlongeronsiteactivities.

If an existing grid represents a stepforward in the deployment of industrialfacilities in the Sub-Saharan Africa, thequalityof thegrid itself canbeoften toopoor to ensure proper workingconditionsforindustrialplant

CASE2:ETHIOPIAVoltagedipsinindustrialplantsconnectedtoweakgrid

This is the case of a cement plant inEthiopiapowered froma110kV “weak”line. Undernormaloperatingconditionsthe110kVlinefeedsthecementmillandprovidespowerforthepowerfulloutputload plus all auxiliaries andProgrammableLogicController.

Transients in the power supply havedifferentconsequencesintheloadsofthecement plant: voltage dips haveconsequences in the control equipment,while power interruptions haveconsequencesintheprocess.Acombinedsolution of UPS for the control and a5MW-2,5 MWh Energy Storage System(ESS) with the function of “voltagesupport” for the process has beenimplemented. The ESS system gets asolution for the recovery of the powersupplyafterafailureinordertolimitthemaximumvoltagedrop.ESScapacityhasbeen calculated in order to supply maxpower for about 30 minutes. A suitable2MWp PV generation is used to restoretheenergywhilea2MWdieselisusedforemergency.

CASE3:ERITREAOff-gridgenerationwithhybriddiesel-RES

Whenever grid is not available, differentsolutions based on off-grid generationare required to provide power toindustrialorprivateusers.Inthiscontexthybrid diesel-RES micro grid arebecomingmore andmore a key elementin the electrification of emergingcountriesbeinga sustainableand robustsolution to bring power even far awayfromexistinggridandexploitingasmuchaspossibleexistingnaturalsources.Thisis the case of the electrification of tworural towns in Debub region in Eritreawhere to bring access to electricity toabout 43000 people the adoption of ahybridmicrogridsolutionwasselected.

The target of the project was to exploitsoil availability for PV installation toensure combining solar energy withbatterystorage,andthepossibilityofRESfeeding minimizing the exploitation ofdieselgenerators.The typicalbasic issueof these kinds of projects, which isusuallythelackofinformationaboutloadprofiles, was overcome by means of adedicated study enabling the estimation

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of peak power demand and averageconsumptions. This result, togetherwiththe studyof solar irradiation in the areaallowedmicrogridsystempropersizing.For each town about 1MW PV planttogether with 1.5MWh storage and400kWdieselgeneratorswereadopted.

Operational philosophy was toaccumulate sufficient excess energyduring daylight hours to allow dieselgeneratorstobeswitchedoffduring lowconsumption periods in the night whenstoredenergycomingfrombatterieswasavailable. In this way diesel generatorsshould run within an optimal efficiencyrange with savings proportional to theamountofsolarenergygeneratedduringdaylighthours.With such an approach astable and sustainablepower supply canbe granted instead of expensive gridextensions or simple but unsustainableuse of diesel generators. Like inMozambique case, even for this projectkeyelementsresulttobelogisticaspectstogether with the need to develop localmanpower able to support plantconstruction and then deal with itsmaintenanceaswell.

CASE4:NIGERIAHydroPowerProductionlinkedwiththeexpansionprojectofaUniversityCampus

An International Financing Institution isexploring the possibility of providing along-term corporate financing to theexpansion Project of the Afe BabalolaUniversityinAdoEkiti,Nigeria.

The Project includes construction of thefollowingnewfacilities:

• a small scale hydro powerinstallation;

• anindustrialresearchpark;and• other infrastructure assets including

a400beds’teachinghospital.

The Project is sponsored by the AfeBabalola University (ABUAD), a privateuniversity established in 2010 with thecurrent enrolment of over 5,000students. TheUniversity aims todoubleits capacity by 2025 across 5 colleges -Sciences, Social and ManagementSciences,Law,Engineering,andMedicine&Health Sciences - and 1 post-graduateschool.

While the development of Phase Iencompassed creating adequateinfrastructures to accommodate theexpectedcapacityofc.10,000studentsby2025, Phase II is primarily focused onenhancing the quality andcompetitiveness of the University tofurtherattractstudents.

The activities performed were based onthe comprehensive analysis of the fullproject with specific focus on the interlinkages of the different infrastructuresand facilities and their financial aspectsaswellastheenergydemandscenariotofine tune the design and optimize theenvisagedinvestment.


Documents

RES4AFRICA PROGRAM LAUNCH · 2019-09-25 · geothermal in the Kenya’s energy matrix. Potential evolution According to the KenGen (Kenya Electricity Generating Company), the country