Course on Organizational and Staff Development Training Rural Electric Cooperatives, Nepal

South Asia Regional Initiative/Energy (SARI/ENERGY) U.S. Agency for International Development

Course Prepared and Provided By CORE International, Inc., Washington, D.C.

September 14-16, 2003 Kathmandu, Nepal

Course on Organizational and Staff Development Training Rural Electric Cooperatives, Nepal

Module III: Technical and Financial Options for Rural Electrification

Module III: Technical and Financial Options for Rural Electrification

I.

Technical Options for Rural Electric Cooperatives (RECs)

II. Advantages and Disadvantages of Grid and Non-Grid Rural Electrification

III. Financing Options for Rural Electric Cooperatives (RECs) IV. Type and Role of Subsidy for RECs

V. Methods of gradual withdrawal of subsidy

Module III: Technical and Financial Options for Rural Electrification

I. Technical Options for Rural Electric Cooperatives (RECs)

Grid extension Distributed power generation and micro-grids Isolated off-grid systems, which include: Micro hydro Photovoltaic Biomass Wind energy

Module III: Technical and Financial Options for Rural Electrification I. Technical Options for RECs - cont'd

Grid Extension
Infrastructure required to transmit power from the source national grid to demand centers and make it available to consumers Includes both the HV/MV transformer and connection line from the main supply point national grid and distribution network and transformers at the load center

Module III: Technical and Financial Options for Rural Electrification I. Technical Options for RECs - cont'd Distributed Power Generation and Micro-Grids Distributed generation is small scale, near the load that provides more economic, and/or less polluting power supply and management options for energy consumers and utilities than conventional central generation Unit cost of delivered electricity is the main factor that dictates their acceptability

Module III: Technical and Financial Options for Rural Electrification I. Technical Options for RECs - cont'd

Distributed Power Generation and Micro-Grids - cont'd

Micro-grids are small electrical distribution systems that connect multiple customers to multiple sources of generation Typically, micro-grids are characterized by multipurpose electrical power service to communities with populations up to about 500 households with overall energy demand up to several thousand kWh per day

Module III: Technical and Financial Options for Rural Electrification

I. Technical Options for RECs - cont'd

Isolated Off-Grid Systems Typically isolated and meet the RE demand of households or at the village level, which may involve small IPPs Village systems are often micro hydro, wind, etc. Household systems are often solar powered systems and biomass based systems

Module III: Technical and Financial Options for Rural Electrification

II. Advantages and Disadvantages of Grid and

Non-Grid Rural Electrification (RE)
Grid Extension - Advantages
Traditionally RE has been provided as extension of the national grid and perceived positively by the rural populations Experience shows that grid-extension-based RE systems are economical when: demand density is reasonably high, and level of collections is high

Module III: Technical and Financial Options for Rural Electrification

II. Advantages and Disadvantages of Grid and Non-Grid

Rural Electrification - cont'd Grid Extension Advantages - cont'd

It is the most suitable and economical model for providing electricity service to high density rural loads in the vicinity of the grid
Even those who cannot afford electricity in their homes can enjoy the benefits such as pumped water, improved education, and better health care facilities Often perceived as a permanent community investment and creates a national infrastructure on which to base future socioeconomic development

Module III: Technical and Financial Options for Rural Electrification II. Advantages and Disadvantages of Grid and Non-Grid Rural Electrification - cont'd Grid Extension Disadvantages

Low demand of electricity in remote rural areas increases the cost of supply to uneconomical levels
Possibility of lack of local technical and management personnel Generally, high technical losses Generally, high administrative costs

Module III: Technical and Financial Options for Rural Electrification

II.

Advantages and Disadvantages of Grid and Non-Grid Rural Electrification - cont'd

Non-Grid Rural Electrification Advantages

Increased reliability and availability in the case of mini-grid systems

Lower to zero power transmission losses

Increase potential for consumer participation (in the case of RECs consumers own the system)

Potentials for utilizing local energy resources to generate power, which otherwise are considered uneconomical

Module III: Technical and Financial Options for Rural Electrification II. Advantages and Disadvantages of Grid and Non-Grid Rural Electrification - cont'd Non-Grid Rural Electrification Disadvantages High capital costs for similar design standards as urban areas Lack of capacity to implement and maintain operations

Difficulty to raise private capital in rural areas

Module III: Technical and Financial Options for Rural Electrification

III. Financing Options for Rural Electric Cooperatives (RECs)

Concessional Commercial

Member contribution
Sweat equity Supplier credits

Module III: Technical and Financial Options for Rural Electrification III. Financing Options for RECs - cont'd

Concessional Finance
Government budget
Multilateral development institutions (IBRD/IDA,

AfDB etc.) soft loans and credits

Bilateral donors under bilateral agreements Specialized rural development funds

Module III: Technical and Financial Options for Rural Electrification III. Financing Options for RECs - cont'd

Commercial Finance Private Banks

Operate in open market Generally offer no project financing Loans mostly short term High collateral and high interest rates

Module III: Technical and Financial Options for Rural Electrification

III. Financing Options for RECs - cont'd

REC Member Contribution

REC member up front contribution is a type of equity participation
REC members pay for service drop and housewiring This type of financing in free of interest

Module III: Technical and Financial Options for Rural Electrification III. Financing Options for RECs - cont'd

Sweat Equity
The member/consumer takes on a broader role

than just being a buyer of a product or service by contributing time and human resources, thereby:
reducing costs of RE, and increasing consumer participation and

Consumers participate in the implementation of RE

acceptance in the REC

Module III: Technical and Financial Options for Rural Electrification III. Financing Options for RECs - cont'd

Suppliers Credit
Widely practiced in financing technologies and inputs Financing at competitive rates

Primarily used for introducing new technologies and products to an otherwise un-served market
For example, the manufacturers, say of miniturbines, mini-diesel gensets, and PV systems, may offer suppliers credit in order to make a market entry and/or enhance their competitiveness

Module III: Technical and Financial Options for Rural Electrification

IV.Type and Role of Subsidy for RECs

Role of Subsidy
To lower cost of providing electric service to rural areas and make it affordable To promote use of electricity income generating activities in rural areas

To support rural social development by providing incentives for using electricity in education, health, and other community rural institutions

Module III: Technical and Financial Options for Rural Electrification IV. Type and Role of Subsidy for RECs - cont'd

Type of Subsidy
Grants received from the Government budget Low interest and moratorium on interest for some period by domestic development institutions on loans Subsidy by multilateral, bilateral, and other donors in the form of grants and low interest funds

Tax exemptions on equipment used for providing electric service

Caps on price of goods

Module III: Technical and Financial Options for Rural Electrification IV. Type and Role of Subsidy for RECs - cont'd

Apply subsidy appropriately through ensuring

Support for access to energy but not financing consumption Creation of a market without distorting market rules

Equitable use without creating or reinforcing a monopoly

Neutrality in terms of technological choices

Module III: Technical and Financial Options for Rural Electrification

V. Methods of gradual withdrawal of subsidy

Why withdrawal of subsidy

Only the government would wish to provide subsidy as its policy The government can not afford to provide subsidy for ever, otherwise it would face serious financial problems

Module III: Technical and Financial Options for Rural Electrification

V. Methods of gradual withdrawal of subsidy - cont'd

Why withdrawal of subsidy - cont'd Other donors would never provide subsidy as a grant on a regular basis Rural utility (electricity, drinking water, primary health, etc.) service providers can not remain commercially viable if they provide subsidized services. Also, the service would deteriorate over time

Module III: Technical and Financial Options for Rural Electrification

V. Methods of gradual withdrawal of subsidy - cont'd

Approaches for withdrawal of subsidy Integrate rural energy and rural development programs for poverty alleviation of rural population Train and employ rural population in the activities of rural service providers

Create an environment for rural industries which can employ rural population thereby increasing rural buying power

Module III: Technical and Financial Options for Rural Electrification

V. Methods of gradual withdrawal of subsidy - cont'd

Approaches for withdrawal of subsidy - cont'd Encourage rural cottage industries

Improve educational and health care facilities in rural areas

Involve local NGOs in all aspects and activities for poverty alleviation programs

Involve local rural population in decision making for developing and implementing integrated rural programs

Module III: Technical and Financial Options for Rural Electrification

V. Methods of gradual withdrawal of subsidy

Approaches for withdrawal of subsidy contd Educate the rural population

that electricity and other rural services cannot be provided to them on subsidized rates for ever
that the subsidy would be withdrawn over a period in a gradual manner

that they have to increase their economic condition to afford rural services after the subsidy is completely withdrawn