The mini-grid monopoly – Gift or curse

Speaker 1: 0:09

Solar mini-grids have turned from small pilots to an electrification wave. We were there when mini-grid regulation was established, when financial transactions were closed. We saw new technology thrive and companies fail. This is where we tell the stories. This is where we discuss the future the mini-grid business Powered by Inensis.

Speaker 2: 0:36

Hello, my name is Nico, ceo of Inensis. This episode's subject is the mini-grid monopoly Gift or Curse. My guests are Grace Perkins from the African Mini-Grid Developers Association and Samuel Buña from the African Forum for Utility Regulators. Thus, we have the private sector and the public sector represented today. Grace Perkins is the Chief Growth Officer at the African Mini-Grid Developers Association, amda, where she focuses on engaging with and providing value to AMDA members. She brings experience from multiple aspects of the mini-grid sector, has worked at USAID's Power Africa designing program to support central electric utilities across Africa, at Spark Meter, providing smart metering solutions to mini-grid operators worldwide, and most recently at Renewwea Energy, a mini-grid company and AMDA member, where she secured the company's first mini-grid licenses and served as a member of the AMDA Board of Directors.

Speaker 2: 1:45

Samuel is the Project Coordinator at the African Forum for Utility Regulators, afur. He is a Finance and Banking major from Macarena University in Uganda with extensive experience and project execution. Samuel has been the lead on the project called Mainstreaming Mini-Grid Tariff Settlement Tool and Methodologies across African Regulators, among other projects for AFUR. His work has provided him extensive knowledge of the mini-grid environment on the continent. Samuel, you are coordinating a working group of African Regulators working on mini-grid regulations under AFUR. Having discussed with your working group members a lot, you probably understand the regulator's perspective on mini-grids quite well. Grace, you are representing mini-grid operators under AMDA and therefore know the private sector perspective quite well. Today I would like to dive one level deeper into the subject of regulation as well. Most of our listeners will already suspect that this is on regulation. I would like to avoid just listing the technicalities of a regulation, but instead derive what mini-grid regulations should look like from the basic requirements of all parties involved. Does that approach sound good to you?

Speaker 3: 3:12

Yeah, no problem.

Speaker 2: 3:13

Sounds good to me. Good Samuel, can you do me a favor and explain to our audience why is a mini-grid a natural monopoly?

Speaker 3: 3:25

The mini-grid is providing power to a village or to one rural community. This only competition would be the national grid, which wouldn't yet have reached the area. That's the easiest way I can say that an actual monopoly somehow comes up because of a mini-grid being operational in one area.

Speaker 2: 3:46

So what I understand is that, on the one hand, the mini-grid developer operator has the monopoly in this community which basically exempts him from natural competition with other mini-grid companies or other suppliers, providers of electricity. This could potentially have the effect that he is not forced through that competition to provide the best possible service. He is also not really forced through competition to minimize tariffs as much as possible, and that is where regulation comes into play. On the other hand, as you already said, there is great opportunity for that mini-grid operator to have good collaboration with the community and develop something which grows and which provides business for both sides. Is that a good summary, samuel?

Speaker 3: 4:44

Yes, I think that's actually a very perfect summary.

Speaker 2: 4:47

We all know the problems of monopolies.

Speaker 3: 4:50

Monopolies can be a big challenge to any given society.

Speaker 2: 4:55

Okay, grace, why can the mini-grid monopoly be a curse?

Speaker 4: 5:03

Thanks, nico, and thanks for having us here today. So I'm going to go out on a limb and say that I actually wouldn't focus on curse or not a curse, nor even really monopoly versus not monopoly. I think for me there are a couple of key takeaways in sort of thinking about this problem, which sort of boils down to competition. I think the first thing is that electricity provision is traditionally seen as a public service delivered by the state. But I think those of us here would agree that relying solely on the utility-led national grid extension model is probably unlikely to deliver universal electricity access in the next few years at least. So today, obviously, there are alternative strategies that enable private capital, private sector expertise, to participate in rural electrification in Africa, rather than having African governments being solely responsible to expand electricity access.

Speaker 4: 5:54

Obviously, one of these strategies is decentralized rural electrification, and we know that nearly all centralized electricity grid systems began as these isolated mini-grids that were then interconnected over time and, funnily enough, today we're actually seeing a lot of talk about going back to decentralized, distributed grids for increased resilience. So I don't think monopolies are necessarily the future of energy access, but relatedly, in this future, whatever it looks like, I think we will see more partnerships between mini-grid operators and national utilities or distribution companies In Nigeria. In fact, the recently enacted Electricity Act permits even more entities, for example the states of Nigeria, to generate, transmit and distribute energy. So the competition question, I think, will become less and less relevant as new ways of working together emerge. And then, I think, for me and for AMDA perhaps most importantly, with 600 million people across Africa living without electricity, the question that comes to mind for me is why focus on competition at all, especially when we think about on-grid versus off-grid From AMDA's point of view, there's so much work to be done and currently not enough resources to do it.

Speaker 2: 7:03

Yeah, grace, would you say that mini-grids are not a natural monopoly, then it's a good question, nico.

Speaker 4: 7:11

I think probably if you were to pin me down for an economics paper, I'd probably have to give you a better, straightforward answer. But I think clearly there's this trade-off Just like Samuel said, you get exclusive rights to distribute electricity to a service area. So I do think that describes a mini-grid right. We know that our members need something legal that tells them I have a defined exclusive service territory and, just like you said, nico, the trade-off for that is then you are subject to regulation.

Speaker 4: 7:42

I guess my answer is there can be monopolies in the sense that there's one service provider per area. But I actually think what we'll see in the future is this world in which there are more partnerships and more ways of working. So, rather than just this area, there could be scenarios in which mini-grid developers if the national grid reaches them, as long as the right regulations are in place, then they become energy generators that sell into the national grid, or they could continue to operate and distribute energy for just the area that they work in but are interconnected with the national grid. So I guess my point is just I think there are going to be a lot more models when we think about the grid of the future.

Speaker 2: 8:23

Yeah. So I also agree, grace, that looking at the subject with a long-term perspective, you could say, yeah, but sometime in the future there may be competition coming in. But I think if we look at the current stage, right after commissioning of a system and that is where most of the issues are actually occurring, according to my experience at least relatively early in the process, where electricity customers receive electricity for the first time in history, and first they are all happy, and then after a few weeks they may say, yeah, nice that we have electricity now, but why is it so expensive? Why can't we just pay the same tariffs as in the city? Then electricity reliability may not be as high, it may be very high. And then new discussions come up and the customers say, hey, well, why can't we have cheaper electricity? Why can't we have more reliable electricity? Why can't we have more powerful electricity? We want to connect larger loads, and so on.

Speaker 2: 9:34

So, yeah, all of this, from my perspective at least, leads me to the understanding that we're talking about a natural monopoly here. And that is also, from my understanding, the main reason why we need regulation. Because, on the one hand, regulation needs to somehow moderate between the monopolist and the customers because market forces are not taking this role of moderating between these two groups and then also somehow limit the power of the mini-grid company. But what we've learned over the last decade or so? In most relationships between a mini-grid company and a rural community, the rural community is the more powerful partner in that relationship and therefore regulation may also protect the mini-grid operator from the power of the community. Would you agree, samuel Grace? Whoever wants to come in, maybe I would take it fast.

Speaker 3: 10:45

Nika, I don't know if you've heard this before, but the underlying principle of regulation and it depends on the school of regulation you go to is you have to disappoint all your stakeholders proportionally.

Speaker 4: 10:58

That's the underlying principle of regulation.

Speaker 3: 11:02

And when you talk about these mini-grids, you look at the number of stakeholders you're dealing with if you're the regulator. On the one hand you have the rural communities, the consumers. On the other hand you have the developer and there's usually the third hand which is kind of ignored, but it's also there, the policymaker. Those are the ministries, the, probably the rural electrification agency. You, as the regulator, you're in between.

Speaker 3: 11:29

There, from where I'm from in Uganda, we say you're balancing the boat, so you step a bit this side, then you have to step back this side, so you try and keep everything even.

Speaker 3: 11:39

So, just like you say at a certain point yes, the rural communities have power, but these are mini-grids and in most situations mini-grids are developed by private individuals who have to make some money. So you also, as a regulator, you have to provide that enabling environment for the individual to get back something. Maybe it might take longer than he wants, but you have to give him that environment to be able to get back something. At the same time, you have to be able to show the government that, look, we're helping you meet your policy objectives of universal access for the whole country. So it's a really dangerous mix but, like I've said as a regulator and most regulators would agree with me you're going to disappoint everyone, but your aim is to disappoint everyone in an even manner. So that's just how this business is at this point in time. Yeah, I don't know if, Grace, you want to add something to that.

Speaker 4: 12:38

Thanks, samuel, that really gave me a laugh. I appreciate the hard role that regulators have, of course, I agree. I think one thing you said, niko, was that this regulation kind of goes between all these interests. I think protection is a good way of looking at it. We're protecting the community, we're protecting the interests of developers and their investors. I think one thing that has been really impressive about mini-grids in AMDA's latest benchmarking, africa mini-grids, or the BAM Report, service uptime was reported above 99%, and so I know that's something that the mini-grid sector is really proud of.

Speaker 2: 13:10

And then, when we look at mini-grids specifically compared to main grid regulation, tariffs are, of course, a difficult subject, because tariffs and mini-grid tend to be higher than in the main grid. Even if you find this balance, the tariff may still not lead smaller mini-grid companies to profitability. And yeah, I guess that the role that regulators have to play in the mini-grid sector is even more complicated than in the main grid sector, where the basic fundamentals of profitability are already established. Do you agree here that the mini-grid regulator has got a much more difficult position than the main grid regulator?

Speaker 4: 13:55

It's a great observation, nico. Thinking about this topic of monopolies and competition and regulation, one of the takeaways that I came to is just that we can't talk about regulation without talking about investment or access to capital at the same time, and I think the reason for that is, of course, we want mini-grid tariffs to be as close to national grid tariffs as possible. Obviously, policymakers, in whatever country you're talking about, they're going to set their desired standard, and so then I think it's incumbent on development partners, mini-grid developers, other supporting organizations, to figure out how do we get to that level. The policymakers are the ones that are going to say this is what we want. It's possible, obviously, from the private sector side, that we say, okay, well, that's not going to be possible for us from a commercially viable model. But I think, figuring out first of all, what is that level we want to get to and I think the way we do that is we have to understand that there are probably different capital mixes required for different markets, and by markets I even mean even within a country, you can have truly last mile mini-grids that might require a much higher level of subsidization than the peri-urban larger towns, things like that If we really truly want to get down to a national tariff level, then you need some sort of subsidy, and that could come from several sources.

Speaker 4: 15:14

It could be grant funding from development partners. It could be a national fund from a fuel levy or other taxes. It's Amda's role, with our partners, to define how we design these funds. So for me, that problem of how do we figure out that difference between what mini-grid companies are charging for tariffs versus the national grid there's a whole lot of subsidies that help us get down to that national grid level tariff and I think being able to look at those side by side and what's going to the national grid versus what's going to mini-grid companies is a really important part of it. But I'm sure Samuel would love to speak from the regulator side.

Speaker 3: 15:51

I think in this case the regulator side isn't so different. I could say that sadly for mini-grids and I'm using the word sadly because it's the unfair truth sadly, mini-grids will always be compared to the national utility, whether they like it or not, and we have seen cases in very many countries where the consumers are always saying but the national utility is cheaper and, like Grace rightfully said, there are lots of subsidies that are involved with national utilities. So in most cases the price you see for a national utility might not be the true price of energy. In most cases and I know most of the regulators on the continent are encouraging the policymakers to realize that can we look at cost-reflective tariffs? If you look at a cost-reflective tariff, it shows you the actual cost of energy. But, like I've said, it's an unfair comparison.

Speaker 3: 16:53

The only issue with the subsidies is that people need to find these sources. We can't continuously rely on governments to provide these subsidies For one reason governments have too many interests at heart. When healthcare becomes more important, probably the energy sector will suffer. If national security becomes more important, the energy sector would suffer. So we need to find access for these subsidies that the mini-grids would need. But the truth of the matter is, as long as the and I know our regulators are pushing for that to start looking at cost-reflective tariffs.

Speaker 3: 17:30

Consumers can tend to agree with the cost-reflective tariff Because in the case of mini-grids, my assumption is if I'm getting it from someone who's not the national utility, I expect something a bit better. So there the onus is on the mini-grid developer to show why the consumers should go to them. It should be that if I get on to the mini-grid, probably it's more reliable than the national grid. Probably the blackouts are less. In case I have an issue, the response time is quicker with the mini-grid. So if such small things come up, definitely the consumers would tend to be yes, that still has it on, but they wouldn't mind paying slightly higher than the actual national tariff.

Speaker 2: 18:19

Yeah, Slightly higher means some single digit percentage, most probably, but reality is, at the moment, that mini-grid tariffs are 50 to 100% higher than the main grid tariff, or even more, several hundred percent in some countries. All right, now we have been talking about the four players in the sector, which is the community, the mini-grid company, the government and the main grid utility. Whatever that may look like, as this episode is, on why this regulation is established in a way as it is established, can you, samuel, just lay out for our audience what the main protection features are which set the rules for the interaction between the four parties?

Speaker 3: 19:11

Maybe the main features of a good regulation. First of all, it clearly defines the roles of all these stakeholders. Through this project that we are doing as a four, we have noticed that, okay, in certain markets on the continent, people don't know their roles within the sector. You'll find the policy makers getting confused. They think they're doing something, but then it's the regulator who should be doing it. The same way, you would find the national utilities insisting on something, yet it's not supposed to do that. So a clear definition of what the roles of each of these stakeholders is has to be there, but also a clear definition of the stakeholders themselves. We might be talking and people might be listening out there to us, and then they say, okay, but who are the stakeholders?

Speaker 3: 20:00

The stakeholders may vary, but we need to define who each of these stakeholders are. It varies from country to country, from continent to continent, but we need to clearly define who the stakeholders are. We need to clearly define what their roles are, but then, aside from that, we need to also define the standards. When it comes to minigraids, one of the key issues that the regulators and the government agencies, the policy makers, are stating is why is it that certain minigraids are oversized. If someone oversized the minigrid, eventually the tariff will definitely be higher. But if they get the right size of the minigrid, the tariff would be a bit reasonable.

Speaker 3: 20:43

So those are just some of the few things off the bat of my head that would come up in a good regulation. But also in terms of the methodology. We need to have a clearly defined method with which the tariff is going to be calculated, and probably in some countries we see that they define the method but also go further and put an annex to their regulation and say this is the tool we will use to define the tariff. So these are just some of the things that can be in a good regulation, and in most cases they provide clarity to the private sector, because if the regulations are clear and well articulated, the private sector is happy to come into that market, but if they are not, the private sector is hesitant because they do not know what they are going into. Anything can change. You sleep today, you wake up tomorrow, things are different, so the regulations should be at least clear in regards to those few things I've mentioned.

Speaker 2: 21:42

Yeah, that was from the regulator's perspective. Grace, do you want to tell us what a good regulation may look like from a private sector's perspective?

Speaker 4: 21:54

Sure thanks. I agree with so many things that Samuel just said. I think I love that you started with clarity. I wrote down as I was taking notes, as you were talking, clarity in big letters. So I think that's something that is so important for the private sector. I think that, for me, actually effective mini-grid regulations start with a regulator, and you need a regulator that's pretty independent, forward-thinking and kind of able to simultaneously manage the dual and sometimes competing mandates that we've talked about here protection of all these different stakeholder groups. And so then, for the private sector, really effective mini-grid regulations start in the design phase.

Speaker 4: 22:32

An example of this has been in Kenya, where the Energy and Petroleum Regulatory Authority, epra, epr-a they've been drafting the energy mini-grid regulations of 2021. They wrote these regulations before this current round of regulations has come up. They had done which was what naturally several countries across Africa had done, which was trying to use existing regulations designed for independent power producers or IPPs. Obviously, ipps have had a much longer start ahead of mini-grids, and so in many countries there's been an attempt to kind of copy and paste regulations meant for single large-scale power plants onto these decentralized rural utilities. But it's such a different game for what we as mini-grid companies do, and so, as a result, I think EPRA, for example in Kenya, took a lot of lessons learned from trying to implement regulations that were maybe not necessarily so fit for purpose, and have used those lessons learned to inform these current mini-grid regulations of 2021, which are in draft but are many of the provisions are operationalized today for the developers in Kenya, and so EPRA has actually set a really excellent example of how to incorporate feedback from many stakeholders, but especially from the private sector, often through comments consolidated and submitted by AMDA, and so an example of this has been the result of consolidating both a generation and distribution license.

Speaker 4: 23:58

You know there's so many pieces of paper and applications that need to be submitted just to get a mini-grid license, and if you think about a mini-grid company who wants to be operating 40, 60, 100, 150, 200 mini-grids, potentially in a single market, anything you can do to reduce the sort of administrative burden makes a huge difference.

Speaker 4: 24:16

But the concept of a single mini-grid license was novel in Kenya just a few years ago, so it's really clear to me that things can change over time, and I think, just to add a couple more things, we had a AMDA organized panel with the Global Energy Alliance for People and Planet, gap, as well as the World Bank's ESMAP, during Africa Climate Summit, and Gabriel Davies, who's the managing director of Crossboundary Access, said something along the lines of money flows where mini-grids look and feel like infrastructure investments, which I thought was so great that we're at the point in the sector where we can say that. And so, just like Samuel said, you know we need to see regulations that clearly spell out tariff calculations, adjustment methodologies, grid encouragement rules and that result in, you know, long-term concessions and or licenses, which is what you commonly find in infrastructure projects. So, if we keep that in mind, mini-grids have to have their own set of regulations, but we can draw from the things that are relevant from the IPP sector perhaps to the mini-grid sector.

Speaker 2: 25:12

Yeah, okay, so you said, on the one hand, the IPP sector is, of course, not a good template to copy and paste for the mini-grid sector, mainly because the IPP sector doesn't know the demand risk. They don't have to live with the problem of generating, producing something which they don't know if it will be sold, because they can just feed everything they produce into the national grid. That's the definition of an IPP, basically. So now in the mini-grid space, we're looking into something completely different. Even from that perspective, of course, the regulation must be completely different, but I also agree that we need to work towards securing finance for mini-grids and generate the trust that investors and financiers need to put their money into the sector. Maybe we can walk through those aspects in regulation that determine whether investors would actually favor a country with that regulation or not. Grace, do you want to mention some of the aspects that investors and financiers would definitely want to see in mini-grid regulation?

Speaker 4: 26:32

Actually, one of the most effective components of mini-grid regulation is their implementation. So is what's written on paper the same thing that happens in real life, and so that's. Do I get my permit in the amount of time that it says that I will? And then back to the clarity piece. Is there even a timeline in which I would expect to, from the time I submit my tariff model and my application receive a permit? What is the tariff calculation? So you want to go through the model, and I love what Afor is doing to try to build a universal tariff model. I think because mini-grid investors are potentially simultaneously looking not just at one market but at many markets across Africa. Having some sort of standardized tool makes a huge difference in the pace that they'll get comfortable with. This is how a tariff would be calculated.

Speaker 4: 27:24

I think some really important things to be spelled out in regulations are how do I revise my tariff If macroeconomics change? Is there a process to have a tariff review? If so, what is that process? Similar for grid encroachment? Is there any language about what happens when the national grid approaches? And, if it does, what exactly happens? And I think, again going back to Samuels' point having a real clarity about who those stakeholders are and their role in all these things. So those are the things I would add. I'm sure there are many more that I would love for other people to chime in on, but I think I would actually just go back to. At the end of the day, is what's written actually what happens in real life? And I think, when you're talking about trust, that's one of the main things that builds trust among developers and their investors.

Speaker 3: 28:17

Yeah, I think what Grace has said sums it up. I can tell you we have had conversations with donors, mini-grid funders, even with the regulators themselves, policymakers, and one of the key things that comes up is how well articulated the electrification plan is that manages to sort out the issue of grid extension, grid encroachment, if that plan in particular is well articulated. I mean a mini-grid. If a mini-grid developer approaches a funder and then they look at the electrification plan, they would be saying why would I fund a project when the government intends to take power there in two or three years? But if it's a project where the government is saying, well, 20 years from now is when we look at it, they would definitely fund that energy.

Speaker 3: 29:12

But also the other point that Grace mentioned, which I really liked, had to do with adhering to what is written. I know on the continent of Africa we have the issue of this is what's in the law? You think it's what's in the law, but then someone somewhere comes up says something and things turn around. But we are glad as us, as a four, our members are sticking to their guns and we're seeing it in more and more markets that what is said in the regulations is what is adhered to. Yes, there's still a lot of room for improvement, but at least the journey has started where things that are stated are what actually happens.

Speaker 3: 29:54

But a major issue that we have noticed from many of our regulators and I'm very sure even, Grace, that your members would be talking about this issue when it comes to the issues of currency depreciation, you have people who have sources of finance obligations in foreign currency, in most cases the US dollar, but then they're operating in markets where they're receiving, they say, the Uganda shilling, the Nigerian Naira, the Sierra Leone.

Speaker 3: 30:25

They're receiving money in that case, but then this money is totally losing its value. So there's that issue there. Those are some of the things that are starting to become a bit more important in how do we put these into the regulations, that how would such an issue be resolved? What is the process of resolving such an issue? These are just some of the things that our regulators have been reaching out to us and, yes, as of, we have kind of figured out a way to resolve it, but it's still something that has to meet universal consensus amongst our regulators. So those are just some of the few things that I would like to add to what Grace is saying. The most important is what is written should be what is done in actuality.

Speaker 2: 31:12

Yeah, let's get back to this foreign exchange issue later. I would like to stick to what you both said what is written needs to be done. So it's basically the question of rule of law in a country. There are methods of kind of enforcing rule of law, for example through instruments like MIGA, where you have a contract may it be a concession contract or may it be a license contract where on the one side the government has signed the contract, on the other side the mini-grid operator has signed the contract. Then this contract can be insured by MIGA. And if government does not apply its own laws, then MIGA would come in and say hey, this is your law and now you're doing something that contradicts your own law. If you don't rectify, then we will use the let's say, the influence that World Bank as a group, as a banking group, has to make sure that you follow your contracts and you follow your own law. And that is an option Like what do you think about that from a regulators perspective and from a private sector perspective?

Speaker 4: 32:37

Yeah, maybe. What I would add is adhering to contracts is important, regardless of which side you're, on, which stakeholder group you fall into. I think the electricity sector is one. The energy sector in general is where we've talked a lot about trust this far on this podcast and I think, both sides adhering to trust. One of the things that AMDA would like to do more is to just continent-wide to build a better understanding and acceptance of mini-grids as an infrastructure solution to energy access slash rural electrification. So I think my answer has more to do with it's important that both sides are understanding.

Speaker 4: 33:18

Why have we gotten into this contractual relationship in the first place?

Speaker 4: 33:21

It's because I, the government, have a need and you, the developer, are going to help fulfill that need. And then, on the other side, the developer says I, the developer, you know, expect to be treated a certain way and to see certain things. So you know, I think my own personal experience tells me too that you know, just in life, things don't always go the way you want them to, and so I think having a good relationship with those actors within a certain market, with the community, with the local levels of government, with national or federal levels of government, and by having a good relation, meaning can both sides come to the table and say hey, this is. You know? I obviously understand life isn't as rosy as this and you can't just converse your way out of every situation, but I do think the mini-grid sector will continue to flourish and thrive if both sides, I think, actually have a better understanding of each other from the get-go. So yeah, that would be my answer, Samuel, how do you want to add to that?

Speaker 3: 34:20

I'm going to use the perspective of one of the countries we have recently been to, and the challenge with the law is that the law can always be misinterpreted. And let's say, they can put, for example, a law in front of all three of us here and I'll take a different meaning from Grace and also Niko will take a completely different meaning. And then the issue with this comes that we all walk away without saying, hey, let's first try and see if we have all understood it the way it should be understood. I know for a fact that many countries there's a particular country I don't want to say which country they are, but if there are people listening from there, they would definitely know that it's them. I left them with the fact that, look, you have to sit down. You, the policymakers, you the developers, you the regulators, you have to sit down at the same table and understand the law that is in front of you in a uniform way, because I can tell you, the regulators have a totally different idea of what the policymakers have and the developers there in that country have a completely different idea from these two other stakeholders. And then that means that the real person supposed to benefit, who's the consumer is actually suffering in that market.

Speaker 3: 35:47

So there's a serious need for and it's something that we're trying to do with our mainstreaming minigrate tariff settlement tools project we want the private sector and the public sector to sit down and understand one another. And when I say sit down and understand one another, most people take it that oh, just exchange pleasantries. No, you need the two sectors need to have candid and open conversations. And when I say candid and open conversations, it means that both sides are going to hear things that they don't want to hear, and probably that's the only way you make progress when you hear something that you don't want to hear because it's more beneficial to you.

Speaker 3: 36:31

But aside from that, when it comes to the law, these laws and we're encouraging our regulators to do it more often, because technology is ever evolving, the world is ever changing the law as it is today might not apply to the same sector in two years time, so we're encouraging them review your laws as often as you can, maybe every three, four years, and in such a situation you would be able to meet all these other issues. So that way that's our hope that if these sectors come together for the benefit of the energy sector. Everyone will benefit in terms of revising the law, but also in terms of sitting down and actually engaging with one another. Yeah, that's what I can add, but it's a pretty difficult question to answer, nico.

Speaker 2: 37:27

When I talk to, for example, lawyers from investors, they wouldn't say let's sit together and talk, somehow we'll find our way. But as soon as real money is involved in large amounts, then just sitting together and talking is probably something that should have happened in the past. And lawyers will tell me well, where is my security here? What remedy do I get when government is not complying with its own rules? Like, even though, samuel, you're saying that everybody in that one country has a different view on certain sentences and certain legal documents? I guess if you talk to a lawyer, the lawyer would say well, if that is the case, then somebody hasn't done his job right, because usually law must be written in a way that doesn't allow much room for interpretation.

Speaker 2: 38:27

And, yeah, well, we can sit and we can refine law. And, samuel, I fully agree that what you're doing in our fore and what the regulators are doing with their contributions is definitely welcome to refine law and make it more precise and make it clearer, as we already stated from the beginning. But I actually thought that we've had moved beyond that level already and today, basically some 10, 15 years after mini-grid private business has started, I thought we would have actually gone beyond that level. What do you think? Are we still at that early stage?

Speaker 3: 39:09

Maybe to answer your question. I've been moving around Africa talking about mini-grids. We are ahead of where we are, but we are not as far as we think we are. I don't know if I'm making sense. Many stakeholders outside the continent might believe oh, africa is at this stage.

Speaker 3: 39:32

But when you go on the ground, when you speak to the regulators, when you speak to the developers, when you speak to the consumers, you realize that, ok, people are thinking we are seven steps ahead, but in actuality we are probably three steps ahead.

Speaker 3: 39:47

So that's the challenge. So the difference in those four steps between where people think we are and where we actually are causes a major issue, because people look at it one way and wonder why aren't things moving that way? But then when you're on the ground, you realize this is why things are not moving that way, because we haven't probably done X, y and Z to reach where we should be. So my point of view is that, just having interacted in these various countries, in these various geographies in West Africa, in Southern Africa and parts of Eastern Africa is that we are not as far as we think that we are. We are ahead of where we were 10, 15 years ago, but we are not as far as probably that was planned for us to be by this time, but that's something that can be worked on. Maybe we increase speed to get to the next stage or something like that. That's how best I can answer that question and that's from a personal experience right now dealing with the regulators and the different markets on the continent.

Speaker 2: 40:57

Samuel, are you saying people are not reading the legal documents, or are you saying that the legal documents are not good enough yet they need to be improved?

Speaker 3: 41:10

I would go with the latter. The legal documents need to be improved. I can tell you there are countries on this continent where, actually, the regulators tell you yeah, we have a bit of a low, but it's not as robust as it should be. We shouldn't be at that stage where the regulator is telling you what we have isn't as robust as it should be. We should be at a point where the regulator is saying, yeah, so this came up. I think we need to add it to this, not them telling you we're just starting out.

Speaker 3: 41:42

We need to make it more firm things like that, Because I think one of the challenges on the continent is that we have various energy sectors in particular countries that covered by a law that was probably made in the 80s, the 90s. Just when you come to mini grids, it's probably a sentence or two that talk about mini grids.

Speaker 3: 42:02

Mini grids are totally different animal that need more than a sentence or two. They probably need a few pages, maybe 10, even more than 10 pages to talk about how they should be regulated, governed and things like that. So, yes, we need to do a lot more when it comes to the legal frameworks.

Speaker 2: 42:25

Well, I agree with you, Samuel, when it comes to regulation text. I am also seeing being involved in regulation drafting over and over again in various countries in Africa and partly Asia. The texts are becoming clearer. Like earlier, regulators and especially policymakers which stand behind, the regulators in many cases found it difficult to be very precise and now, as policymakers and regulators are understanding the mini grid space better, they are able and willing to commit more to more precise language. So, for example, what will happen when the main grid comes? In some cases, governments simply want to keep all options open and then they are very vague in their legal documents, may it be the electricity act, may it be electricity regulation of whatever kind, or, after all, also minigrid regulation. And now I see a trend, and an accelerating trend, with more precision in legal documents, especially minigrid regulation. Do you see the same grace?

Speaker 4: 43:44

Yeah, thanks, nico, I'd say so. I mean, my personal experience comes from participating, actually, as a minigrid developer, in the Kenyan review of the minigrid regulations, and I think I do align with what you said. You know, I mean, legal recourse is set up for a reason, but maybe what Samuel and I are trying to say too is, yeah, in that early stage, being able to sit down together, but of course, there have to be, yeah, you have to have a way to navigate through if certain agreements are not being upheld. I think, when it comes to the text, I think it's a function of people learning more, and the increased clarity that we're seeing over time comes from standardization, which, of course, is part of the work that Samuel and I are doing with this standardized tariff tool. But I also think we've spoken in this episode the site selection continues to get better. There's several things that they're technical standards that become more standardized over time, and so, yes, I agree, I think it's getting better.

Speaker 4: 44:42

I think we need for a like a four, where regulators can learn from one another, talk to each other, ask questions that maybe they wouldn't have anyone else to ask the colleagues that I have in regulatory bodies across the continent I also know on a single day on their desks they have many great applications to approve and then the next hour they're focusing on the petroleum industry. So I also think, too, there's something. Despite all of those competing priorities, I think there have been several countries across the continent who have really focused on. Okay, how can I make this as clear as I possibly can right now for the stakeholders that I'm working with it in my sector?

Speaker 2: 45:25

And when you say standardization, you also mean harmonization across the continent, right?

Speaker 4: 45:32

Yeah, some things could be harmonized. For sure, you know, AMDA is very supportive of the standardized tariff model, but for me maybe I'm hesitant to say harmonization everywhere all the time, because I think obviously national policies are going to dictate. You know, at the end of the day, what countries want, and so some countries are going to be a little bit more open to tariffs that are closer to cost-reflective. Some countries are just absolutely not going to be, and so I think some things I think will be very difficult to harmonize, but things that we can harmonize, you know, some level of the regulations, definitely the tariff model, I think some technical standards can be standardized. So there is a lot of room for standardization and harmonization, but I don't think 100%.

Speaker 3: 46:15

Let me just use the example of the tariff tool that we are coming up with.

Speaker 3: 46:20

We as a four, and with AMDA, we recognize that countries are different. The things that are affecting, let's say, uganda are different from the things that are affecting South Africa and way different than the things affecting, let's say, southern Sudan or Sudan. Yeah, however, we can have what we call a foundation, yeah, and then from that foundation, if you have a similar foundation, but then you have a few aspects here and there that are specific to the countries, it becomes a lot easier. Like I say, you can't 100% harmonize. You could probably say we can 70, 75% harmonize. Maybe that's been a very speculative figure, but you can harmonize to a certain degree. There are certain things that can be done that are similar. Then you just add into that, and I think that's that's the path that we have started. Because once you start that path and I like the fact that, grace, you mentioned what's the requirements for access to this funding I can tell you today I was in a meeting where someone actually asked we're doing everything, but can you tell us what are the actual requirements that the funders want?

Speaker 3: 47:36

So if we are still having such questions, it means, okay, maybe there's room to kind of standardize that so that they know. Okay, even if I'm going to the FCDOs, the Rockefellers, the Shell foundations of this world. This is all I need. They probably go with that. So that is a big issue on this continent, yeah.

Speaker 2: 47:56

And this podcast shall also be a contribution to actually that exchange that is required to come to an agreement on all the different aspects of mini grids. Good, I would like to talk about one aspect of mini grids that you both mentioned earlier and that is site selection. Samuel, you said earlier in this conversation that the National Electrification Plan somehow need to be available and clear to allow a good allocation of sites to mini grid companies. In whatever way this National Electrification Plan is usually at least I don't know of any example where this is the case Usually it's not connected to mini grid regulation in any way. Somehow, mini grid regulation can react to the National Electrification Plan, but can it be coupled? Should it be coupled, I think?

Speaker 3: 49:02

they are related. Can they be coupled? It's a hard sell because, you see, the National Electrification Plan probably takes into account the actual National Grid, but they are related in the sense that. Let me just use the example of where I'm from, uganda. Let's say, I don't know if you've heard of the region called Karamoja. We like joking about that region. They're still behind the rest of Uganda and things like that, which isn't the case. But Karamoja is one of those remote areas.

Speaker 3: 49:33

The plan could be and here I'm speaking hypothetically let's say, the Electrification Plan is that Karamoja will get full National Grid access in, say, 2050. But we're in 2023, so what are the people of Karamoja supposed to do? How is that related to mini grids? The government can say yes, the plan is to go there in 2050. However, the private sector can go there, set up mini grids. You see, the beauty of National Electrification Plans is that they can go farther and deeper into this and say fine, if mini grids are there, probably we'll take them over during whatever. That's how deep those plans can go, so it can select, like you said, select a cluster of sites and say the cluster of sites, using the example I said, is in Karamoja, there are sites. Here we want the private sector to come.

Speaker 3: 50:25

So in that way they are not exactly coupled, but they are related because, like I said earlier, the mini grid space is a totally different beast compared to the actual National Grid. It's a completely different beast because in most cases the mini grids don't have access to the subsidies the National Grid. That's just a simplification, a simple offsetting it. But regarding the planning, the planning has to be. It's related to how the mini grids can be developed in the various countries. But coupling them together can be a hard sell because we know the policymakers in our various countries. They might not agree with that because for them they'll look at it at the angle. Why should we couple up with the private sector who wants to make some money? Yet for us, our role is to uplift our people, so that's why it might be a bit of a hard sell.

Speaker 2: 51:22

And it would require more commitment to the electrification plan. As soon as it's coupled to law, or even only to regulation, then somehow the electrification plan is fixed and cannot be changed that easily anymore.

Speaker 3: 51:37

It changes the legal status of the electrification plan to a higher level, basically of legal documents, maybe what I could add to that is by making it standardized, we also have to realize and understand how governments work. Even in everyday life. You can say my plan is to probably buy a new car in the next three years, but maybe two years down the line you realize I actually don't need a new car that fast, but I need maybe a new house faster than I need a new car. So you might have to change it a bit. That's why it also becomes a bit tricky that it doesn't give the governments a bit of wiggle room to say that, okay, we're saying 2050, maybe we push it out by a few years. You could say, okay, national disasters hit that area, it's more difficult to reach there. We can't reach there when we should be reaching there.

Speaker 3: 52:38

So that's, just something that has to be put into perspective. Maybe, grace, you'd like to add.

Speaker 4: 52:45

Yeah, I was just. I was thinking about how interesting but difficult of a question it is and I think, again thinking about the private sector side, a lot of our members would love for the national electrification plans to be followed more closely Because, again, clarity and assurance brings in more money. Basically those are not the only things that attract investors, but I think they are two very important things. Yeah, if the national electrification plans could be set in stone more, I think it would be great, but I recognize how difficult that would be maybe to tie them to law.

Speaker 2: 53:23

Yeah, but maybe a subject we can look into more and see if we can actually find governments to buy into that, governments who want to accelerate their electrification pace. Let's look into another aspect of regulation monopoly of mini grids and how this all works together. We have discussed in other episodes in the past about mini grid companies, mainly focusing on the most attractive villages first, which are usually the larger villages, which are usually the villages with large markets that have good economic potential, and they tend to neglect the smaller villages. But what I believe is that if we want to roll out mini grids across the African continent, we need to make both profitable Electrification of large mini grids and electrification of smaller mini grids. And to actually reach there, I believe the regulator has a specific role to play, and this role goes beyond the role that it's currently playing.

Speaker 2: 54:48

At the moment, grants, which we've also addressed in our discussion today, and regulation are two different subjects that are being handled by two different entities in the same country in most cases, and I believe that this is rather a problem, and this is rather creates conflicts and creates kind of mismatches when it comes to tariff regulation, when it comes to tariff setting, when it comes to allocation of sites and so on. I believe that the regulator in many cases has got all the data required and all the overview that it needs to, after all, determine what level of grant a certain village or project requires, depending on the size of the village, depending on the economic viability and so on, which other players like ministries or rares or so, would not have because, after all, the regulator is the entity determining the tariff. Would you agree that in the future regulators could play a stronger role in also grant allocation and site allocation, because at the moment it's the rares taking that role right, or the ministries.

Speaker 4: 56:13

I like the idea of coupling the economic need of a mini-grid site with the amount of grant allocated to it. The three together revenue, subsidies and tariffs are intricately interlinked, and we can't forget that one really affects the other, so they all have to be in alignment. Some mini-grid sites will require up to 80% capex to reach national grid parity with the tariffs, and so it's an interesting concept. I think what I would add to it and I'd be curious what Samuel would say would be that, thinking about all the tasks that regulators have to do, I think it could be an interesting concept, as long as the other functions that a regulator has to play don't get subsumed by this new task or function.

Speaker 3: 57:00

I think what, nicol, you've suggested would be very interesting and actually, in an ideal world, it's a very important role for the regulator to have access to all this information, to monitor it and to be the source of this information, basically. But I can tell you, the main challenge that regulators face and most of our members, any of them, across the over 36, 38 countries on the continent whose regulators are attached to us it's the capacity. And when I talk about capacity, I'm not talking about technical capacity. The regulators tend to have people who are sharp, intelligent and understand what they're doing, but when I'm saying capacity, the numbers are few. Just like Grace said, if we're to give them this role, will it take away from their other roles?

Speaker 2: 57:55

All right, samuel. I understand that a four is currently supporting regulators in improving many great regulations harmonizing, standardizing certain documents, processes, tariff regulation, but also regulation texts To overcome that capacity shortage. Do you want to tell us a little bit more about that? What is still in the pipeline, what is about to come, and what are you currently working on?

Speaker 3: 58:26

Sure, definitely. You see, given our unique position as a four, we speak to regulators more often than many people, so we kind of understand their needs. Right now, we realize, at least in the space of many greats, most of these countries tell us that, yeah, it's not new, but it is new to them. So we're trying to come up with you would call them standard, model mini-grade regulations, and this we're doing with our partners from GetTransform To find templates you could say that any regulator can refer to, knowing that, okay, this is what the ideal should look like. And then, ideally, what we envision recently in our next phase is to say, okay, fine, they can get the ideal, but then we can take it a step further to help them understand. Okay, let's take, for example, zimbabwe, what do you need? They can cherry pick out of that and say, no, we don't need this, we don't need this. Maybe we need to factor this in. How does it build up to that? Those are some of the things that at least we're doing as regards the model mini-grade regulations.

Speaker 3: 59:34

Aside from that, you mentioned our tariff tool that we are coming up with, that we're doing trainings with, we are preparing what would, for us, would call phase two. We're still in the processes of defining what phase two will have, but one of the most important things that I think has come up from our regulators is that there's an abundant need for benchmarks, and when I say benchmarks, they don't talk it. Yes, they would love the global benchmarks, but now they want African benchmarks, benchmarks that they know. Okay, this is related to Africa, this is a standard in Africa, and so that's one of the aspects we're trying to forget in, as well as training more and more of our members on the use of the tool, because there's been a lot of interest.

Speaker 3: 1:00:22

We're working with lots of people. Lots of people are trying to come on board the likes of Commesser, the likes of already we have get transformed. We are trying to see how we can work with SMAF, the FDB program, as well as our work with other agencies such as Sustainable Energy for All, so that we can reach more of our regulators, for them to reach the level that they believe. It's a strange thing. It's they themselves who say we know that we are still lacking. We want to reach a certain level, so for us, that's a plus that our members know that they need to up their game. It's a big cake to eat, but we'll eat it bite by bite.

Speaker 2: 1:01:04

Yeah, nice yeah, and in Nensos, of course, is happy to support and get transformed in this endeavor that you just described, grace. What do you think will mini-grid regulation look like some years from now? How would AMDA contribute to that, and what are the major points that AMDA would like to change about how mini-grids look like and how they will look like in the future?

Speaker 4: 1:01:33

Sure, samuel, as you were talking, it was just making me reflect too. I think something I forgot to say earlier is that when we think about standardization or we think about ideal mini-grid regulations, we're not just doing it for the sake of just doing it, it's not just because, oh, this is the right thing to do. It is the right thing to do, but I think the key there is standardization and optimal mini-grid regulations. They make everyone's lives easier, and on that path of making everyone's lives easier, that's the pathway to scale, and especially in the mini-grid sector, scale is so critical for commercial sustainability. When I think about why we do this, why we're doing the same as doing the hard work of traveling across all these African countries is because we're doing it so that we get on this pathway where we're able to deploy hundreds, thousands, tens of thousands of mini-grids at a time. If you look at some of the World Bank numbers, if we want to electrify 380 million people in Africa by 2030, we need anywhere between 140,000 to 160,000 mini-grids. And so what I hope regulations look like in the next five years are simple, clear, easy, clear roles for each of the stakeholder groups, and I hope that it's the sort of thing that gives comfort to investors, comfort to developers. And then I think again that key for all of us will be is what's written, what's happening on the ground, and I think what AMDA would like to see in that would just be some really clear things on key issues. Right, what happens when the grid approaches? How do we adjust tariffs, things like that.

Speaker 4: 1:03:11

But the other important question that you asked, nico, was what is AMDA's role going to be in this?

Speaker 4: 1:03:16

And I think what AMDA has always been and will continue to be is a convener of sorts.

Speaker 4: 1:03:21

There's a lot of organizations doing a lot of things in the sector, and we want to work closely with those who have expertise, like a four, like the African School of Regulation, to say, well, here's what the regulator's point of view is. We can say, well, here's what the private sector's point of view is. But I think AMDA's role is then also to make sure we're coming to the table at the same time to have conversations. Like I said, my personal experience in Kenya was AMDA played this coordinating role to get input and feedback from all of the developers on what we wanted to see in the minigrid regulations, and a lot of those changes and comments were accepted, partly because of the good relationship that AMDA had built with government partners in Kenya. So I think, yeah, I think ideally what it looks like is both sides, or all four sides, all four stakeholder groups, having a really clear understanding of the needs and constraints. Also, to have the other side continue to see Amdus role is bringing people together so we can have difficult but productive conversations.

Speaker 2: 1:04:23

All right. Thanks a lot, Grace. Thanks a lot, Samuel. That was an exciting session and I hope to see you again soon. Thank you.

Speaker 4: 1:04:32

Thanks, nico, thank you.

Speaker 3: 1:04:34

All right, thanks, nico.

Speaker 5: 1:04:36

My name is Janis Holzigo and I am the COO of Inensis. Over the last decade or so, I have had the privilege to be directly involved in the process of operating minigüits in remote communities and drafting miniguit regulation in countries like Nigeria, madagascar and Mozambique. First of all, to say that of course, it is important to regulate minigüits. This helps to protect the interests of miniguit customers, operators, policymakers and the main grid operator. What I think the discussion between Nico Grace and Samuel shows is how difficult it is for the regulator to moderate between these parties. As Samuel said, every one of them will likely be disappointed to some degree by the outcome. It is, however, important that throughout this process, some level of trust is established between all different stakeholders. Trust between the parties is a necessary foundation for minigüits to be rolled out successfully, and everyone must contribute to creating this trust. This can happen, of course, among other aspects, through open dialogues and conversation.

Speaker 5: 1:05:51

The discussion between today's podcast participants also shows that in many countries, the roles and responsibilities of different sector stakeholders are still being defined, and regulators have a critical role to play here by embedding these roles and responsibilities in regulation. One of the ideas raised was that regulators can take on additional responsibility by getting directly involved in the decisions on what type and level of subsidies are required for particular projects and programs, but in many cases this would require additional capacity. As pointed out by Grace, it is further important that regulation is not only drafted but also implemented as per the regulatory text. Reliability of, and dependability on the regulation can build trust with investors, who will, in turn, be incentivized to finance more minigüits, accelerating the sector's growth. Reliability and dependability can also be achieved through more clarity in regulation and anchoring regulation in higher laws.

Speaker 5: 1:07:03

At the moment, electrification plans and miniguit regulations are largely developed independently from one another. Where governments want to accelerate miniguit electrification, electrification plans and miniguit regulations could be interlinked. This would, however, elevate electrification plans to a higher level of legal accountability, acquiring more firm commitment to the plans by government. In the past, miniguit regulation texts have been vague in many countries to allow some room for interpretation. With miniguits now building a positive track record through reliable access to electricity in many communities, they have started to create trust, allowing policymakers and regulators to be more precise in law and regulation. This, in turn, attracts more miniguit operators, investors and financiers to the space, accelerating miniguit rollouts.

Speaker 1: 1:08:02

This episode of the minigrid business has been brought to you by Innsys, your one-stop shop for sustainable minigrids. For more information on how to make minigrids work, visit our website, innsyscom, or contact us through the links in the show notes. The minigrid business powered by Innsys.