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Assistance and Advisory Services for Energy Sector Transformation (AASET)

The Assistance and Advisory Services for Energy Sector Transformation (AASET), a Program under the Energy II Indefinite Quantity Contract (Energy II IQC), is aimed at fostering economic growth by strengthening energy sector governance in the Southern African and South Asian countries.

AASET is designed to address issues of energy sector governance with specific focus on three key areas:

• Energy Policy Reform
• Regulatory Strengthening
• Energy Enterprise Restructuring and Commercialization

Assistance in these areas is essential, as even today energy poverty prevents billions of people from fulfilling the promise of a better life and inhibits countries from participating fully in the increasingly global economy. As civil society becomes ever more sophisticated in calling for increased participation in the management of national resources the potential for energy related conflicts becomes a harsh reality. AASET seeks to increase the levels of public participation in issues of energy sector governance and allows for the natural economic growth that accompanies the responsible development of modern energy resources. The growing transparency in developing countries enables a new daily reality of a society with independent regulatory systems and a knowledgeable public, capable of assisting with the determination of energy use and allocation.

The final report has been completed and submitted to both USAID and RURA.

Assistance to the Government of Rwanda in Establishing a Fuel Cost Pass-Through Mechanism and Developing a Tariff Methodology

With USAID assistance, provided through the Assistance and Advisory Services for Energy Sector Transformation (AASET) Task Order, Rwanda is taking important steps in regulating public utilities and improving their operating performance. This quick turn-around assistance was based on an urgent need in Rwanda to develop an appropriate tariff mechanism with open participation of the public, to meet several World Bank energy sector loan conditionalities on time.

In May of 2005, a CORE Tariff Specialist -- in conjunction with the Rwanda Utility Regulatory Agency (RURA) and the leading national private power producer, Electrogaz -- developed a fuel price adjustment mechanism that will allow for automatic prices adjustments under agreed upon conditions. This allowed The World Bank's Emergency Electricity Rehabilitation Project Loan, signed on March 1, 2005, to become operational. This loan is primarily aimed at rehabilitating the grid which is currently load-shedding at a level of 50%. The chief conditionality related to making this loan operational was the establishment of a fuel cost pass-through mechanism that was acceptable to The World Bank and acted as a forecast of Electrogaz's operating revenues and expenses. Thus, the AASET Task Order provided a fast and flexible way to leverage USAID assistance to meet an immediate need in Rwanda .

The second part of this work, scheduled to take place in the summer of 2005, will include tariff experts developing a methodology for a new tariff mechanism, applying it to Electrogaz operations, training RURA staff in its proper applications, and developing guidelines and procedures for public participation and involvement in the tariff process.

Southern African Power Pool (SAPP) Governing Documents Review and Recommendations

The legal documents that govern the Southern African Power Pool (SAPP) are the Inter-governmental Memorandum of Understanding (IGMOU), Inter-utility Memorandum of Understanding (IUMOU), Agreement Between Operating Members (ABOM) and Operating Guidelines (OG). The documents were derived from the desire for economic co-operation, equitable sharing of resources and mutual support in times of crisis under the Southern Africa Development Community (SADC) protocol. The environment, under which the power pool now operates, including the SAPP reporting protocol to SADC, has significantly changed warranting a review of the SAPP documents.

CORE is providing three specialists to work with the Southern African Power Pool to review the relevant SAPP documents and revise them with a view toward the new realities under which SAPP is operating, not the least of which is the inclusion of private companies as operating members. This effort began in late 2004 and is expected to be completed by August of 2005.

Assistance to the Zambian Energy Regulatory Board (ERB) in Zambia's Rural Electrification Regulatory Issues

Today, less than two percent of Zambia 's rural population has access to electricity. Rural electrification has traditionally been the responsibility of the Zambian national utility, ZESCO. However, recently the Government of Zambia has changed directions and is looking to the private sector to provide the bulk of rural electrification services. The challenge for the Government is to create a platform that will attract private investors and minimize costs as well as the subsidy element.

CORE's team of experts is working with the Energy Regulatory Board to shape a proactive role that will help create the market for rural electrification, clarify market participation rules for investors, reduce costs and risks, develop regulations related to subsidy and tariff, formulate processes for licensing and franchisees, and design appropriate standards and guidelines. The final report for this activity including a detailed approach for the proposed regulatory public hearing and comment process has been submitted to USAID and ERB, Zambia.

Assistance to the Ministry of Energy and Water Development in National Rural Electrification Planning and Policy Development

Traditional rural electrification has often failed because it is generally based on grid extension with minor off-grid investments:

• Grid extension is too expensive for most rural consumers;
• Traditional master plan methods are too expensive and time consuming to produce;
• Traditional master plan methods are geared towards the grid connected utilities’ traditional customer base – rural customers are very different and the approach to electrification must be very different for rural electrification to succeed, and;
• Traditional methods fail to involve local communities in the process.

There are two types of traditional rural master plans. The first type uses the grid connected utility model for system expansion planning, which is either a least-cost model, such as the Wien Automatic System Planning Package (WASP) or an integrated resources planning model. The principal problems with this approach in the Zambian context are:

1. By their very nature these are systems expansion models, meaning that they focus on the least-cost supply options-- the urban or peri-urban areas near to the existing grid. Many of the best opportunities for rural electrification may be so far from the grid that extending the grid to them may be uneconomic.

2. ZESCO, the national utility in Zambia, is the only organization that has access to these models in Zambia. Thus, the Rural Electrification Authority (REA) would have to rely on ZESCO to run the model or purchase it themselves. The first option contains conflicts of interest since ZESCO is a potential supplier of rural electrification services, and the second option is not feasible at this time since REA does not have sufficient funds to fully staff its operations.

3. These models optimize the cost of meeting a specific level of demand. The assumption is that one kWh of demand is of the same value of as another kWh of demand. This will not be the case in Zambia’s rural areas since income generating activities are specifically targeted as the main customers.

4. There is a tendency to focus on status quo methods or projects for new power. Thus, analysts tend to focus on grid expansion or isolated small (but not micro-mini) hydro and diesel for new power generation. The models’ databases have generic data on renewable energy but not specific data; thus, the tendency is to fall back on generic data or to collect expensive and time-consuming localized data.

The second type of rural master plan uses a variety of models that prioritize projects on the basis of their cost per kWh served. It is more oriented toward off-grid or distributed power, but it is still not the appropriate method for Zambia at this time. It is unsuitable for REA principally because it:

• Treats the value of kWh served as equivalent for all consumers or classes of consumers;
• Is data intensive and requires lengthy and costly data acquisition; and does not involve local communities in the process.

As part of a continuing effort to bring pivotal assistance to Zambia’s electricity sector, USAID funded assistance to the REA for the preparation of a methodology for Rapid Resource Assessment (RRA) as an innovative substitute for the traditional rural electrification master plan. RRA is a technique that uses local knowledge and local participation as a key input to reduce both cost and risk. It is suited to Zambia’s rural electrification planning since these rural projects will be small in scale, they require local participation, and costly data collection can be avoided. RRA provides the REA with a tool to reduce cost and begin enlisting local participation in the rural electrification process.

The purpose of this activity was to develop an RRA methodology and to provide the REA with tools for identifying and prioritizing rural electrification projects. The goal is to jump start the process of rural electrification in the most effective manner. This report covers the first part of a two-step process. The first step focuses on methodology. The second step focuses on implementation.

The development of a comprehensive national rural electrification plan for Zambia will be based on a series of discrete steps that will build – from the bottom up – a set of supply and demand tools that can be used to guide development funds toward the projects with the greatest likelihood of success in the near term. This effort will complement activities at the policy level in Zambia to fund and empower the REA. Non-grid approaches to rural electrification are expected to be undertaken to a large extent by non-governmental entities, including, communities, cooperatives, energy service companies, and other organizations.

For non-grid approaches to rural electrification to succeed, it will be necessary to identify potential areas where there is sufficient density of demand – actual or potential – combined with the possibility of supplying at least some electricity from local primary energy sources. The actual examples of the RRA method combine these demand-side and supply-side elements. An RRA exercise consists of the following elements:

• Use of Geographical Information System (GIS) data to quickly identify overlaps in population density, economic activity and key resources (water, wind speed, distance to markets, etc);
• Examination of proximity and existence of key public sector institutions, such as schools and transport centers; and
• Use of GIS data to identify potential emergence of new or enlarged resource-based industries, such as irrigated agriculture, forest products, and food processing.

Using data available from GIS mapping services, it will be possible to construct a picture of the most likely and lowest cost prospects for a local electricity supply system based primarily on demand from economic activities rather than household consumption.

Rapid Resource Assessment is an ideal approach for planning and prioritizing rural electrification projects. Most rural electrification projects in Zambia will be small and may need to be subsidized. Experience has shown that large utilities are unable to plan, build, and/or operate small scale renewable energy projects on a cost effective or profitable basis. Moreover, experience has shown that for energy projects to be successful, local stakeholders must participate in their planning, construction, and operation. Using RRA as a tool for planning allows the REA to jump start not only the master planning process because it is quicker and more cost effective than the traditional method, but also because it involves local stakeholders from the very beginning of the process. The participation of local stakeholders helps to reduce costs and time by tapping their knowledge of local conditions and their data collection services and helps to reduce local opposition because communities do not feel left out of the process.

While RRA is not new and has a long history of application in areas from water to health and for individual small scale renewable energy projects, this is the first application that CORE is aware of in rural electrification planning. In the past, most rural electrification was undertaken by vertically integrated state-owned utilities that used mainstream system planning tools – principally, looking at grid expansion. Even when rural electrification was given to another body, the staff and/or the tools available were from the national utility.

Zambia’s REA is new and lacks sufficient resources to conduct the traditional assessments. Moreover, the traditional assessments were geared for judging ability to pay based on past experience by customer class. REA’s approach to rural electrification explicitly targets economic activities rather than numbers of potential customers. This report demonstrates why RRA is an appropriate and cost-effective technique for rural electrification planning.

Assistance to the Government of Rwanda in Establishing a Fuel Cost Pass-Through Mechanism and Developing a Tariff Methodology

The World Bank signed an Emergency Electricity Rehabilitation Project loan for Rwanda on March 1, 2005 . The main purpose of this loan is to fund the rehabilitation of the grid, as currently the electric load shedding is at a level of 50%. However, the loan will not become effective until the Government of Rwanda meets certain conditionalities. To this end, CORE is working with the Rwanda Utility Regulatory Agency (RURA) on developing and redesigning the country's electricity and water tariffs to meet the requirements of The World Bank.

In May, 2005, CORE's experts, in consultations with the various stakeholders within the sector, developed a Fuel Cost Pass Through Mechanism using the most recent data available. CORE’s Final Report has been submitted to both RURA in Rwanda and USAID.

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