Tariff Structures to Encourage Micro-Grid Deployment in Sub-Saharan Africa: Review and Recent Trends
Purpose of Review
This article reviews trends for micro-grid tariffs in Sub-Saharan Africa from two perspectives: guidelines for setting tariffs and methods for structuring tariffs. Different approaches are briefly described, and general benefits and drawbacks presented based on recent experiences and available literature.
The pace of micro-grid deployment has suffered from a lack of private sector investment, which is often inhibited by unfavorable policies and uncertainty around tariffs. Traditional utility tariffs are too low to allow micro-grid investors to recover their full costs, but a variety of new approaches can be applied to address these challenges.
Broad consensus suggests that cost-reflective tariffs are a critical enabler for micro-grid scale-up. Such tariffs can be coupled with subsidies or with hybridized approaches as well as unique new methods of tapping alternative revenue streams to maintain affordability for low-income customers and financial sustainability for micro-grids. There is no one-size-fits-all approach so long as lifetime costs can be recouped.
KeywordsMini-grid Micro-grid Tariff Rural electrification Energy access
Power Africa has provided NREL funding for work on policy issues, including tariffs for micro-grids in Africa. This article is based on that work. This work was supported by the US Department of Energy under Contract No. DE-AC36-08GO28308 with Alliance for Sustainable Energy, LLC, the Operator of the National Renewable Energy Laboratory, and the United States Agency for International Development.
Compliance with Ethical Standards
Conflict of Interest
The authors declare that they have no conflict of interest.
Human and Animal Rights and Informed Consent
This article does not contain any studies with human or animal subjects performed by any of the authors.
Papers of particular interest, published recently, have been highlighted as: • Of importance
- 1.Angelou N, Elizondo Azuela G, Banerjee SG, Bhatia M, Bushueva I, Inon JG, et al. Global Tracking Framework [Internet]. The World Bank Group; 2013 May. Report No.: 77889. Available from: http://documents.worldbank.org/curated/en/603241469672143906/Global-tracking-framework
- 2.IEA. Energy for All: Financing access for the poor [Internet]. Paris: International Energy Agency; 2011 Oct. Available from: http://www.worldenergyoutlook.org/media/weowebsite/2011/weo2011_energy_for_all.pdf
- 3.Bardouille P, Avato P, Levin J, Pantelias A, Engelmann-Pilger H. From gap to opportunity: business models for scaling up energy access [Internet]. International Finance Corporation; 2012. Available from: https://www.ifc.org/wps/wcm/connect/Topics_Ext_Content/IFC_External_Corporate_Site/Sustainability-At-IFC/Publications/Publications_Report_Gap-Opportunity
- 4.Reber TJ, Booth SS, Cutler DS, Li X, Salasovich JA. Tariff considerations for micro-grids in Sub-Saharan Africa [Internet]. Golden, CO: National Renewable Energy Laboratory; 2018 Feb. Report No.: NREL/TP--7A40–69044, 1422366. Available from: http://www.osti.gov/servlets/purl/1422366/
- 5.Walters T, Esterly S, Cox S, Reber T, Rai N. Policies to spur energy access: volume 1 - engaging the private sector in expanding access to electricity [Internet]. National Renewable Energy Laboratory; 2015 Sep. Available from: https://www.nrel.gov/docs/fy15osti/64460-1.pdf
- 6.Schnitzer D, Lounsbury DS, Carvallo JP, Deshmukh R, Apt J, Kammen DM. Microgrids for rural electrification: a critical review of best practices based on seven case studies. United Nations Foundation; 2014 Feb.Google Scholar
- 7.Weston P, Verma S, Onyango L, Bharadwaj A, Peterschmidt N, Rohrer M. Green Mini-Grids in Sub-Saharan Africa: Analysis of Barriers to Growth and the Potential Role of the African Development Bank in Supporting the Sector [Internet]. African Development Bank; 2016 Dec. Report No.: 1. Available from: https://www.se4all-africa.org/news-resources/news/article/publication-green-mini-grids-series-1-analysis-of-barriers-to-growth-and-potential-role-of-afdb-150/
- 8.• Franz M, Peterschmidt N, Rohrer M, Kodev B. Mini-grid Policy Toolkit: Policy and Business Frameworks for Successful Mini-grid Roll-outs [Internet]. Eschborn, Germany: EU Energy Initiative Partnership Dialogue Facility; 2014 Sep. Available from: http://www.euei-pdf.org/en/recp/mini-grid-policy-toolkit A comprehensive treatment of the policy and business al considerations that must be addressed in order to scale-up micro-grid deployment.
- 9.World Bank. State of electricity access report 2017 [internet]. The World Bank Group; 2017 May. Available from: http://elibrary.worldbank.org/doi/book/10.1596/26646
- 10.IEA. Africa Energy Outlook: A Focus on Energy Prospects in Sub Saharan Africa [Internet]. Paris: International Energy Agency; 2014. Available from: https://www.iea.org/publications/freepublications/publication/WEO2014_AfricaEnergyOutlook.pdf
- 11.IRENA. Accelerating Off-grid Renewable Energy: IOREC 2014 Key findings and recommendations [internet]. Abu Dhabi: International Renewable Energy Agency; 2015. Available from: http://www.irena.org/documentdownloads/publications/iorec/iorec_2014_key_findings.pdf
- 12.PwC. A new Africa energy world: A more positive power utilities outlook [Internet]. PricewaterhouseCoopers; 2015 Jul. Available from: https://www.pwc.com/gx/en/utilities/publications/assets/pwc-africa-power-utilities-survey.pdf
- 13.Abdur Rahman Alfa Shaban. Tanzania president reverses utility tariff hike, fires head of power firm. Africanews [Internet]. 2017 Jan 2; Available from: http://www.africanews.com/2017/01/02/tanzania-president-reverses-utility-tariff-hike-fires-head-of-power-firm/
- 15.IRENA. Accelerating off-grid renewable energy: IOREC 2016 key findings and recommendations [Internet]. Abu Dhabi: International Renewable Energy Agency; 2017 Jan. Available from: http://www.irena.org/-/media/Files/IRENA/Agency/Publication/2017/IRENA_Accelerating_off-grid_renewables_2017.pdf
- 16.IRENA. Policies and Regulations for Private Sector Renewable Energy Mini-grids [Internet]. International Renewable Energy Agency; 2016 Sep. report no.: ISBN 978-92-95111-46-2. Available from: http://www.irena.org/publications/2016/Sep/Policies-and-regulations-for-private-sector-renewable-energy-mini-grids
- 17.IFC. Operational and Financial Performance of Mini-grid DESCOs: Findings and Insights from Pioneer Benchmarking of this Emerging Sector [Internet]. Washington, DC: International Finance Corporation; 2017 Jan. Available from: https://cleanenergysolutions.org/resources/operational-financial-performance-mini-grid-descos-findings-insights-pioneer-benchmarking
- 18.Carlin K, Agenbroad J, Doig S, Henly C, Wanless E. Energy within reach: growing the minigrid market in Sub-Saharan Africa [Internet]. Boulder, CO: Rocky Mountain Institute; 2017 Mar. Available from: https://www.rmi.org/insights/reports/energy-within-reach/
- 19.• Tenenbaum B, Graecen C, Siyambalapitiya T, Knuckles J. From the Bottom Up: How Small Power Producers and Mini-Grids Can Deliver Electrification and Renewable Energy in Africa [Internet]. Washington, DC: The World Bank Group; 2014. Available from: https://openknowledge.worldbank.org/bitstream/handle/10986/16571/9781464800931.pdf?seque%20nce=1&isAllowed=y A comprehensive, thorough, multi-chapter volume that addresses the range of policy, financial, and business approaches that governments and micro-grid operators may employ.
- 20.Sawe E, Katyega M, Odarno L. Mini-grids for energy access in Sub-Saharan Africa: status and lessons from Tanzania [internet]. 2016. Available from: https://cleanenergysolutions.org/training/mini-grids-energy-access-tanzania
- 21.Philipp D. Billing models for energy services in mini-grids [Internet]. 2014. Available from: https://www.giz.de/fachexpertise/downloads/2014-en-philipps-pep-fachworkshop-minigrids.pdf