analysis of electricity tariffs in africa
TRANSCRIPT
DNV GL © 2013 SAFER, SMARTER, GREENER DNV GL © 2013
Tariff Structures for Sustainable Electrification in Africa
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Webinar prepared for the European Copper Institute
Presenter: Dr. Viren Ajodhia
DNV GL © 2013
Agenda
Project purpose
Approach
Country case studies
– Kenya
– Cape Verde
– Ghana
– Tanzania
– Senegal
Conclusions & Recommendations
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DNV GL © 2013
Project purpose
1. Review the tariff structures in representative countries in Africa
2. Assess these tariffs in terms of the long-term financial viability for the electricity sector and their ability to attract capital
3. Offer suggestions regarding how to evolve to a healthier and more attractive tariff structure
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Approach
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Approach – Define customer categories
DNV KEMA defined four customer categories based on a review of national load profiles
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Source: DNV GL
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Approach – Focus on Main Tariff Elements
Some tariff elements are based on rather specific criteria and complex pricing schemes, but represent only a minor share of total grid charges
Overview of tariff elements that have been included in or excluded from the analysis:
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Source: DNV GL
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Approach – Tariff Comparisons
Comparisons made at the level of the end-user tariff, due to relatively limited unbundling of the electricity sector in Africa (i.e. between generation, transmission, distribution and supply)
Includes the costs of all government fees such as environmental taxes, et cetera but excludes costs of Value Added Taxes (VAT)
Comparison Basis – All prices converted into EUR per kWh – Average price for each of the four customer groups
– Domestic, Small Commercial, Large Commercial, Industrial
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Approach – Financial Performance
Return on Capital (ROC; pre-tax nominal) used as overall indicator of financial performance
Type of Analysis – Assessment of tariff adjustments for utility to break-even
– Assessment of tariff adjustments for utility to get Rate of Return of 10% (assumed as starting point for financial healthy performance)
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Country Case Studies
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General
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Country studies of: – Kenya
– Cape Verde
– Ghana
– Tanzania
– Senegal
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Kenya
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Population – 41 million
GDP – 32 billion USD (2010)
16-18% of the Kenyan population has access to electricity
Network losses is around 19%
energy demand forecast: from 7.4 TWh in 2009 to 92 TWh in 2030. This corresponds to an annual increase of 12.8%
Power generation capacity largely dependent
upon hydropower; Highly sensitive to
weather conditions
Tariffs are set in a relative independent
manner with automatic adjustments for fuel,
inflation, and exchange rates
Sources: CIA World Factbook and LCPDP by Energy Regulatory Commission, March 2010 Source: DNV GL
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Kenya – Calculation of average and required tariffs
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Source: http://www.kplc.co.ke
Kenya Power achieves relatively healthy results with current tariffs generating ROC of 8.5% in 2010/2011 If a ROC of 10% were to be reached, tariffs would have to increase
with 1.8%
Potential for higher returns through reduction of losses
Source: DNV GL
DNV GL © 2013
Cape Verde
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Population – 516,000 GDP – 1.65 billion USD (2010) Electrification in rural areas over 95% Network losses 26%
Installed capacity is approximately 116 MW, including 25 MW of wind power and 7.5 MW of solar power. The remaining share is generated by diesel power stations spread across the islands
Dispersed islands and their inherently small power stations have resulted in high electricity costs
No ‘Industrial consumption category’ according to DNV GL grouping, due to lack of HV grid
Sources: CIA World Factbook and World Bank, 2011
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Cape Verde – Calculation of average and required tariffs
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ROC of minus 10.5% means the financial prospects of Electra are precarious For a break-even result, tariffs would have to be increased by
11.0% and even by 21.6% to achieve a ROC of 10%
Potential for higher returns through reduction of losses
Source: DNV GL
DNV GL © 2013
Ghana
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Population – 24.8 million GDP – 38.6 billion USD (2011) Electrification is about 72% Network losses 27%
Installed capacity is 2,186 MW at the end of 2010 and consisted of hydroelectric power (1,180 MW) and thermal power (1,006 MW)
The power market consists of a regulated and a deregulated part – The regulated market is made up of all customers who are not bulk
customers of electricity and is subject to regulated prices
– Bulk customers can negotiate power prices directly with power producers (deregulated)
Sources: Ghana Ministry of Energy and Electricity Company Ghana, 2010 /2011; Public Utilities Regulatory Commission (PURC)
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Ghana – Calculation of average and required tariffs
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ROC of 2.4% means tariffs are currently above the break-even level Tariffs would have to increase by 13% to reach a ROC of 10% There is a very high tariff for the small commercial group. This
suggests some degree of cross-subsidy to other consumer groups
Potential for higher returns through reduction of losses
Source: DNV GL
DNV GL © 2013
Tanzania
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Population – 42.7 million GDP – 38.6 billion USD (2011) Electrification is about 14% Network losses 24.3%
Installed capacity: 887 MW; available capacity: 660 MW in 2010, consisting of hydroelectric and thermal power – In 2010, 73% of total power was generated by the four hydropower
stations
– Severe droughts can reduce available generating capacity by 25 to 45%
260 MW of emergency power generation contracts have been signed since May 2011
Sources: Tanzanian Ministry of Energy and Minerals and Ministry of Finance and Economic Affairs, 2011; V. Mapoza (Frost & Sullivan), 2011
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Tanzania – Calculation of average and required tariffs
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Current ROC is minus 7.2% Overall tariffs would have to increase by 27% to achieve a break-
even situation and by 64% to achieve a ROC of 10%
Potential for higher returns through Loss reduction
Source: DNV GL
DNV GL © 2013
Senegal
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Population – 13.0 million GDP – 25.4 billion USD (2011) Electrification is about 42% Network losses 22%
Installed capacity: 700 MW in 2010, consisting of hydroelectric (10%) and thermal power (90%; diesel generators and gas turbines)
About 375 MW (2 power stations) in new, additional coal-fired capacity is being commissioned
Sources: CIA World Factbook; IEA ‘World Energy Outlook 2010’; Senelec, 2011; African Development Bank, 2009; the Korean Times, 2012
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Senegal – Calculation of average and required tariffs
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Tariffs are almost sufficient for Senelec to break-even, current ROC is -0.1% Increase of 8.5% would be required to reach a ROC of 10%
Senegal’s tariff structure seems to be more cost reflective than others showing a clear reduction in prices for larger customers Considerable increase in returns can be reached by reducing
network losses.
Source: DNV GL
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Conclusions
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Conclusions – Strong Demand growth and potential
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Source: DNV GL
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Conclusions – Weak financial performance but large potential
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Comparison of average tariff for domestic and industry versus realized rate of return. The size of the bubble represents the level of network losses
Source: DNV GL
EU: 0.13 EUR/kWh
Reference
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Conclusions – Possible impact of loss reduction
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Tariff increase to achieve 10% ROR
– Scenario 1: Network losses remain the same
– Scenario 2: Network losses reduced to benchmark of 12%
Source: DNV GL
DNV GL © 2013
Conclusions
The country reviews identified a number of commonalities which seem to be characteristic for the Sub-Saharan countries in general:
– Strong growth in electricity demand
– High potential in demand
– Low financial performance
– Very high network losses
Loss reduction is an important means of achieving sustainability
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Recommendations
A proper balance between tariff policy and losses reduction strategies is required for achieving a sustainable investment in electricity networks:
– Tariffs should be set at economic levels but incorporate a reasonable level of losses
– Utilities should dedicate significant efforts towards the reduction of losses
– Regulatory policy and incentives will be imperative
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Dr. Viren Ajodhia [email protected] +31648925401
Tariff Structures for Sustainable Electrification in Africa Webinar prepared for the European Copper Institute