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Benchmarking and comparing effectiveness of mini-grid encroachment regulations of 24 African countries

@Thomas Coker on Unsplash

The mini-grid market in Africa is steadily growing and solar PV, wind, hydro or biomass-powered mini-grids are expected to be a major factor in the electrification of rural areas. However, mini-grid markets cannot realize their full potential as most energy regulators do not provide an appropriate answer to the simple question “What happens when the main grid arrives?”. The lack of regulatory security of tenure and potentially subsidized tariffs for main grid-sourced electricity risk stranded investments when the main grid arrives and thus threaten private sector participation and investment.

Benchmarking mini-grid encroachment regulations and comparing their potential effectiveness once the main grid arrives in a mini-grid supply area shows that most African countries are inefficient at attracting and retaining private investment. Existing regulations fail to provide adequate protection for the mini-grid licensee, limit potential business models after grid encroachment, black box the compensation mechanisms for the assets transfer and mostly ignore consumer interests. It is important to underline the fact that regulations are permanently in the process of being reviewed and being adopted. This implies that the benchmarking result has only a temporary validity and should be periodically reviewed.

Nevertheless, the conclusions obtained from this study reveal and suggest that the grid encroachment regulation in Zambia is currently the leading regulation for grid encroachment in Africa with an overall fulfilment rate of 81% compared to the second placed Nigeria with 62%, followed by other African countries. Despite the Zambian regulation of not having a publicly available pre-set price or pre-determined price setting mechanism in place, the analysis for Zambia still demonstrates that the country presents various opportunities for mini-grid developers.

The Zambian mini-grid encroachment regulations can be taken as a reference point to influence mini-grid policy makers and develop suitable mini-grid regulations. The benchmarking outcomes among the 24 African nations clearly show that most nations have not done their homework to address or mitigate the grid encroachment risk inherent in mini-grid investments.

Importantly, we also acknowledge that some countries such as Mozambique and Kenya are in the process of publishing mini-grid or off-grid regulations. Hence, there is a need to review the benchmarking results for these countries after twelve months of publication of this research.

 

Excerpt of: Benchmarking and comparing effectiveness of mini-grid encroachment regulations of 24 African countries. A guide for governments and energy regulators to develop effective grid encroachment regulations (Solar Compass / Elsevier 2022)

 

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