Integrated Rural Energy Utilities and some other issues

1. Integrated Rural Energy Utilities and some other issues Introduction and invitation to comment/contribute Douglas Banks, Restio Energy www.restio.co.za A REEEP funded project www.reeep.org

2. Current Situation • Vast majority of rural households un-electrified (>90%) • About 30 to 40% of rural hh in South Africa unelectrified • Wood and charcoal main energy resource • Kerosene, dry cells, car batteries, candles, gensets Grid is first choice, but people still use other fuels, and wood SHS is a significant off-grid technology Significant interest in mini-grid (SA, Zambia, Uganda..)

4. Existing frameworks for delivery • PREPS and LIREPs • Grid distribution (fed from national grid) • Independent grid power based distribution • Private sector led PV sales • Micro-credit/Village Banks • Cash • Supported by ERT (UG), UNDP, SIDA, SSMP • Institutional Electrification • Ministry of Health, Education and others (often using PV) • Thermal energy delivery • Fuel wood collection/use • Charcoal production and sales • Improved stove programmes • Biogas programmes • LPG distribution – private sector • Productive use • MFP’s/PURE/PUC’s etc

5. Key challenges of rural energy delivery • Affordability • Location/Logistics • Scale of enterprises delivering services • Scalability/replicability of operations • Access to government/international resources • Efficiency of the overall delivery framework • Skilled personnel • Sustainable business model that • Ensures delivery • Ensures long term presence, maintenance, advice, support • Financial sustainability

6. The IREU Roadmap • To build a case for rural integrated energy service utilities, serving grid and off-grid households, thermal energy needs, social sector energy needs (education, health, water, ICT) and business needs, and raising awareness of energy options and efficiency • To develop best practice guidelines for these utilities, including business models and implementation and regulatory frameworks • REEEP funded project, implemented by Restio Energy • Integrates planning, and manages planning risks • Simpler funding and implementation management? • Improves scale / viability, especially for management • Manages grid/off-grid tension • Focus on best technology for service in given application • Solid infrastructure, potential to service other development needs • Operate in a ‘service territory’

7. Partially achieved already? • Many elements of the vision presented above have been tested • In concession models • South Africa and elsewhere. • Senegal: SHS, mini-grid and grid as part of single bid • Priority Rural Electrification Projects (Uganda, several other countries) • Exclude thermal, do not deal fully with SHS • Sustainable Solar Market Packages (Tanzania, Uganda) • –exclude grid/thermal • Integrated Energy Centres (SA) • but these are ‘single entities’, exclude grid and SHS at present • Utilities such as EDF, and even Eskom have included grid and off-grid • Seldom specific thermal attention • (e.g. SA concessions, but these exclude grid) • Seldom specific regional focus • (development of a implementation organization with robust capacity at a ‘district’ or multi ‘district’ level)

8. Non-grid energy service delivery is a working reality (SA concessions as an example) • 33 400 installations done and being maintained • 6 operating companies, some 6 years old, 4 of which have significant BEE shareholding • Attracted > R50 million (estimated) private sector investment • DME capital of R3500/connection (No generation, bulk supply etc required) (About R118 million) • Some munics have provided operational (FBE) subsidy (approx R600 000/month) • 142 Employees, 54 subcontractors during routine operations, 100 more during installations • Significant LPG sales • (e.g. NuRa 60 000kg/month) • Reach close to customers (Energy Stores) • International funding for additional concession attracted (approx R100 million) • 1.67 MW of renewable capacity • 2 GWh/annum of RE generation • CO2 & TREC benefits not yet being realised

9. Energy Stores: The heart of the operation • Is the heart of the Utility • Staffed by people from the area • Customer liaison and development (marketing, education) • Installations (currently use centrally managed team and contractors) • Maintenance, revenue collection • Stocks spares, some non-grid appliances • LPG sales and appliances • Resource for energy and development in the community (e.g. workshops with schools and clinics) • Information and sales of energy efficient globes (for grid) • Over time will become independent business unit, franchised to Utility and owned by store manager/staff/local entrepreneur • Will support local ‘service points/agencies’

11. Business model options • PPP ‘Utility’ • purchase in bulk from national or other bulk supplier • Distribute to customers in ‘territory’ • Supply and maintain off-grid • Where appropriate, mini-grid using renewable and other • Incorporate distributed generation • Facilitate or supply thermal energy services (biomass, biogas, LPG) • Energy stores operating as part of a utility (possibly as separate businesses) • Smaller operators (working under a franchise or similar agreement, supported by a regional management services company) • Public sector utilities with a widened mandate • Rural Energy co-operative associations with robust ‘association’ • Two or more entities working in a structured collaboration (e.g. biogas dissemination, and off-grid electrification)

12. Which energy services to include? • Grid • Distributed generation • Micro-grids • Off-grid • LPG? • Biomass? • Biogas? • Bio-fuels? • Appropriate choices will depend on: • Consumer needs • National policies • Status in operational regions • Operational capabilities

13. Grid costs / connection • Usually within reasonable limits, but costs increase under certain conditions • Distance from supply lines with sufficient capacity • Cost of bulk supply • Small settlement size • Low household density/low take up rate • Domestic connections also have impact on generation capex/peak loads

14. Key challenges • Overcoming regulatory and institutional hurdles to integration of grid and off-grid • Permission for PPP to distribute grid • Addressing concerns regarding the establishment of ‘monopolies’ for energy service (regulation) • Achieving the breadth of vision need from funders, investors, authorities, implementers and employees • (people tend to pay lip service to integration but feel more comfortable with ‘focus’) • Staff training at range of levels • Finding way to ensure that ‘less commercial’ activities (e.g. biomass energy, energy education) can be accommodated, sustained within a framework that retains business viability • Fee-for-service or other model for Solar home system delivery?

15. Where next? • Significant interest when I have talked to people • But- is it realizable? Does it really make sense? • REEEP IREU project allows us to explore the issues: • Focus on: • South Africa • Tanzania, Uganda

16. Project team • Doug Banks, Robert Aitken, Alix Clark and Katherine Steel (MIT) will work on this project from Restio Energy. • Partners for this project include: • Chris Purcell of the Energy & Development Group • South African and East African rural energy planning, experience with grid, off-grid technologies and thermal technologies • Sifiso Dlamini , (General Manager of NuRa) • will contribute his experience of off-grid PV and LPG delivery. (D Banks of Restio Energy is also a Director of NuRa) • External review will be provided by • Xavier Lemaire (SERN) and Dr Ekkehart Naumann, AEDB (Pakistan) • Stakeholder involvement is structured into the project • REA (Uganda), DME (RSA), others…

17. Project Activities • Review: based on experience, literature on rural energy entities: Document outcomes, problems, lessons learned in context of IREU. In this process identify most suitable project as reference/test case for development of best practice IEU ‘business case’ rationale. Candidates include NuRa, East African Priority Rural Electrification Projects (PREPs) or similar. • Includes meetings in RSA, UG, TZ • Develop guidelines and reference material • IEU partnership and investor criteria • Regulatory models, institutional framework • Finance mechanisms • Capacity requirements – particularly for rural implementation • Costing of fuel and service options • Business models for IEUs – including path from current to proposed • Financial/economic models for investors (including governments) • Documentation and dissemination • Linking of stakeholders around identified case • Includes planned workshop late 2008 (RSA, UG, TZ) • Targeted dissemination to key stakeholders

18. Grid planning issues (in a country with 4% rural electrification!)

19. Master planning Network Development Plans Energy Service Development Pans Electrification modelling tool Cost benefit analysis (simplified) Detailed economic analysis Decision tools are available

20. Option three: Mduda mini-grid Mduda south Mduda north

21. Option five: Mduda mini-grid

22. Cost and benefits of different options Extract from a draft final report prepared for the DME on mini-grid CBA

23. Summary of key advantages • Large enough, and ‘dense’ enough to justify significant district based ‘energy service provider’ • Connection specific technology decisions • Grid growth risk management • More flexible accommodation of distributed generation • Shared management and field resources • Higher utilization of customer service points • Integrated funding/implementation framework • Lower cost access to capital (compared to consumer finance) • Procurement efficiency • Development infrastructure in rural areas

24. Key issues for Debate • Can you see potential for IREU’s? • Main barriers/opportunities • Who can we engage with? • Are there particular areas where • You are aware of current compatible work? • You feel we should place more emphasis? • Planned developments that could accommodate IREU’s

25. Thank you for your participation and contribution!

26. Productive use of Renewable Energy • Key concern is that off-grid limits productive activity • Note: economic activity does not automatically follow grid electrification • Access to markets, finance, skills, entrepreneurship development, logistics, business support • Productive use with renewable energy is being demonstrated • Concessions: shops, cell-phone charging, sewing, extended work hours • Tourist facilities • Productive use container project – micro-enterprises established in rural communities, bring a range of services and enabling livelihoods: sewing, ICT, retail, refrigeration, shoe repair, hair salons… • Renewable and Hybrid Energy Access for ProductiveUse (CEF/SANERI funded work on frameworks/ strategies for Prod Use of Renewable Energy (see www.restio.co.zaproductive use projects)

27. Productive Use Containers • Nuon/DGIS/Novib • RESTIO Energy/Rural Wealth Creation Project • 6 ‘PUC’s in northern KZN • www.restio.co.za for more info