SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Renewable Energy Module 9: REGULATORY MEASURES AND POLICY OPTIONS TO ENCOURAGE DEVELOPMENT OF RENEWABLE ENERGY

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Module overview Why support sustainable energy Design issues for support mechanisms Types of support mechanisms Support mechanisms in practice

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Module aims To provide an overview of the different advantages that a clear renewable energy policy can provide, and its possible interaction with other policies To explain what the key building blocks are when designing a regulatory/support mechanism To give an overview of the different possible approaches To show how this has been implemented in different African countries

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Module learning outcomes To be able to explain that a renewable energy policy can provide advantages and support a range of environmental and other policies To understand which design elements are key to the success of the regulatory/support mechanism To understand different approaches to designing a regulatory/support mechanism To be able to argue which regulatory or policy approach suits best, given the national or regional situation

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Why Support Sustainable Energy Environment Security of supply Decentralised production Links with socio-economic policy: –Fuel poverty –Gender –Employment –Capacity building

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Design Issues for Support Mechanisms Effectiveness and efficiency Investor confidence is key Interaction with other policy measures Flexibility Stimulation of reducing prices over time

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Types of Support Mechanisms The mechanisms discussed can be divided into two categories: –Regulatory/support options that are immediately applicable to many sub-Saharan African countries –Other regulatory/support mechanisms implemented in the developed countries that may be applicable to sub-Saharan African countries in the future

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Support Mechanisms Applicable in the Short-Term Establishing “standard” Power Purchase Agreement (PPAs) Eliminate cumbersome negotiations Institute a “Standard PPA” - a “standard offer” from the national utility to purchase all energy produced by specific renewable energy-based Independent Power Producers (IPP) at a pre-announced price Set clear rules to allow the sale of power produced to encourage investment in renewables

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Support Mechanisms Applicable in the Short-Term (2) Long-term Electricity Generation Licenses and PPAs for IPPs Currently generation licenses are issued for varying periods of 7 to 15 years Investors have a very limited period of time to recoup their costs and make a decent margin Issuing longer-term electricity generation licenses and PPAs to IPPs (e.g years) can encourage investors Longer-term agreements allow for sufficient time for the investor to pay off project financing debts and make a profit

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Support Mechanisms Applicable in the Short-Term (3) Developing a favourable Tariff Setting and Adjustment Formula Calculation of the feed-in tariff on the basis of the cost of the fuel can result in very low feed-in tariffs offered to renewables Renewable fuel cost is often very low or sometimes free but with higher equipment costs A more favourable tariff setting and adjustment formula takes also into account the “avoided cost” of installing competing thermal power plants

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Support Mechanisms Applicable in the Short-Term (4) ‘Light-handed’ Regulation Deliberate removal of, or making less stringent, provisions for a player or group of players Explicitly exempting or significantly reducing the statutory requirements of investors in sustainable energy For example, waiving the need for licensing small to medium-scale renewable energy investments below a certain capacity threshold

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Support Mechanisms Applicable in the Short-Term (5) Setting Targets for Renewable Electricity Generation Set explicit targets for the share of electricity generated from proven renewable energy technologies such as hydro, wind, solar PV, bagasse-based cogeneration and geothermal The Government of Kenya has set a target of 25% of electricity generation to come from geothermal energy by the year 2020 IPPs actively encouraged to exploit renewables to meet targets

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Support Mechanisms Applicable in the Short-Term (6) Encouraging local private participation in renewable energy development Local private investors can own and operate small to medium scale entities in the power sector Either on their own or with foreign partners Appropriate policy and financial incentives such as: –Enactment of lower entry requirements –Tax holidays –Lighter regulation of Initial Public Offers (IPOs)

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Support Mechanisms Applicable in the Short-Term (7) Providing Subsidies to Rural Investments Rural electrification provides local benefits but has high capital cost Demand/usage of electricity in rural areas is low For a reasonable return on investment, the capital cost of rural electrification needs to be covered in part or fully by subsidies Usually grants financed by donors through rural electrification funds Used to finance rural electrification concessions (e.g. Uganda)

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Support Mechanisms Applicable in the Short-Term (8) Conclusions Relatively easy regulatory and policy initiatives can initiate renewable energy investments Some good examples available in Uganda, Kenya, Tanzania, Mauritius Such initiatives will: –Show opportunities and bottlenecks –Provide input for medium and longer term support instruments

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Questions/Activities “Which of the described support mechanisms could be relatively easily implemented in your country to stimulate renewable energy investments?” Discuss

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Support Mechanisms Applicable in the Medium- to Long-Term Feed-in Tariffs A minimum guaranteed price for output or A premium on the market price for output High degree of certainty for investors Costs to be covered by a levy per kWh (on consumers, on taxpayers, or on both)

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Support Mechanisms Applicable in the Medium- to Long-Term (2) Quota Mechanisms Obligation for electricity suppliers or customers Supported by tradable green certificates Penalty when there is non compliance Government sets level of output Leaving choice of technology to the market Incentive to comply ~ level of the penalty

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Support Mechanisms Applicable in the Medium- to Long-Term (3) Tender Schemes Government organizes competitive bids for RE projects Guaranteed premium ~ increase investor confidence Produces stop and go development

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Support Mechanisms Applicable in the Medium- to Long-Term (4) Voluntary mechanisms By means of green certificates Relying on consumer awareness and willingness to pay Disclosure Green power marketing

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Support Mechanisms Applicable in the Medium- to Long-Term (5) Various Hybrid Schemes Involving two of the above mechanisms Example: Spain wind support mechanisms Possible to combine best of two (or more) worlds Avoid your system getting too complex

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Support Mechanisms in Practice Relatively new policy Thus far concentrated on wind power Tariff schemes seem more successful for wind power (so far) Still unclear for biomass

SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 9 Questions/Activities “A feed-in system will stimulate the cheapest technology.” True or false? Discuss