Commercial Approaches for Integrating Utilities and Off-grid Models
The power sector debate in many low- and middle- income countries has focused on grid expansion versus off-grid options. However, integration of on- and off-grid approaches to electricity delivery, and deeper collaboration between public utilities and private sector off-grid companies, has the potential to accelerate electricity access, drive healthy competition, stimulate productive power use, and drive down power prices.
The Utilities 2.0 consortium, supported by the Rockefeller Foundation and led by Power for All and the Ugandan distribution utility UMEME, is focused on testing and scaling these types of innovative approaches. EAP is helping to develop models that demonstrate how mini-grid developers, utilities, and appliance distributors could work in tandem, leveraging what each does best, to connect more customers, build power demand, and improve the customer experience. Instead of viewing grid encroachment as a threat, the idea is to position the mini-grid for interconnection with the grid over the medium term, building demand through appliance and value-stacking services like clean water provision, and then testing different approaches to asset and customer ownership, management, and branding that could be commercially viable.
The effort is focused in Uganda, where there is strong political will and demonstrated progress behind electrification—official access rates more than doubled from 20% in 2014 to nearly 43% in 2018—as well as a profitable utility. Uganda is one of only two countries in sub-Saharan Africa with electricity systems able to fully recover their operational and capital costs through customer payments, making it an ideal market for testing innovative commercial approaches to integration.
Uganda also faces a unique set of challenges driven by a rapid increase in power supply. In 2019, installed generation capacity increased 15% to 1,134 MWs, while peak system demand was just 724 MWs. The commissioning of the 600MW Karuma dam in late 2020, will grow supply by more than 50% and further widen the supply-demand gap. This surplus capacity comes with a payment commitment regardless of whether it is used, which represents a looming threat of tariff escalation. The supply-demand gap in Uganda could increase total electricity costs by over $950 million per year and increase the cost of service to more than $0.30/kWh.
The implications of the integrated utility approach in Uganda, therefore, must be seen in the context of the formidable near-term challenges the country is facing in continuing to ramp-up electricity access rates while facing growing oversupply of generation capacity and the threat of escalating costs.
Duke Students: Hassan Nadeem, Isaac Rosenthal