How can mini-grid projects incorporate accountability and transparency?

Speeches Shim

Short Answer

The extent to which accountability and transparency is incorporated into a mini-grid project in a regulated market depends on how regulatory institutions are structured, as well as decision making on issues such as licensing, tariff setting, compliance monitoring and quality of service. Accountability and transparency require the following:

  • All stakeholders have clearly defined responsibilities and recognize the jurisdiction of the regulator's authority.
  • Regulatory bodies have well-trained staff and, in some cases, high levels of financial independence, allowing them to function effectively and uphold the balance between public interest and licensees.
  • Opportunities are available for public participation in the regulatory process.
  • The basis for all regulatory actions are clearly defined and understood by all stakeholders.
  • Where it is lacking, the capacity of communities and other civil-society stakeholders are developed to empower these groups to participate in the regulatory process.
  • Effective monitoring and verification mechanisms are established to ensure compliance.

Since mini-grids may range in size from a few hundred W to a few MW, there is no one-size-fits-all approach to ensuring accountability and transparency. Mechanisms for accountability must be well-suited to the system size, taking into consideration the regulatory capacities of the oftentimes overburdened and understaffed local regulatory bodies. For systems that are approaching utility-scale, accountability and transparency measures may closely resemble those applied to traditional utilities.

A hybrid regulatory approach has been employed in Tanzania, where tariffs are deregulated for systems of up to 100 kW. Likewise, in Tanzania, mini-grid operators who enter into power purchase agreements with large consumers are exempt from the general tariff approval process, although the regulatory agency is to be informed of the agreed-upon tariffs between both parties. Retail tariffs for system sizes larger than 100 kW are subject to review by Tanzania’s Energy and Water Utilities Regulatory Authority. Similarly, licensing is waived for developers of mini-grids in rural areas with capacities of less than 1 MW, who are expected to register and provide information required by the regulating agency but are not subject to standard licensing requirements.

Further Explanation of Key Points

Megawatt-scale Mini-grids

Megawatt-scale mini-grids may be considered approaching utility-scale. The 10-MW Caracol Electrification project in Haiti, funded by USAID, is an example of a MW-scale mini-grid that serves as the sole power supply for the Caracol complex. The complex consists of an industrial park and the area around it, which includes 10,000 homes. Efforts to promote accountability for these projects may not differ much from efforts applied to traditional utilities. From an accountability and transparency perspective, large-scale operational issues, such as licensing and tariff determination, are essential, and criteria should be well defined. The basis for decision making about granting, revoking or amending a license should be clearly outlined for the licensee. A well-defined timeline for the licensing process should also be established. In regulated tariff environments, tariff determination processes should be completely transparent.

Regulatory compliance monitoring is needed at all points along the mini-grid project cycle. Construction, for example, should adhere to ensure building and technical codes. Likewise, ongoing financial monitoring will verify that the grid has been built, is being operated as intended and the appropriate tariffs are being charged. Revenue protection (guarding against electricity theft by consumers and tracking bill collections) may require monitoring, although it is important that grievance-handling mechanisms are instituted where mini-grid operators sell power directly to consumers.

Community Participation and Accountability

Community participation is a crucial aspect of promoting accountability and transparency in mini-grid development. In Tanzania, the regulatory framework for mini-grids mandates that developers communicate intended tariff charges to project beneficiaries. Mini-grid developers must use public notices to inform recipient communities of any tariff applications submitted to the national regulatory institution. These public notifications use television, radio broadcast and public hearings. The mini-grid developer is also required to submit proof of such community participation to the national regulatory agency. Likewise, regulators must consider comments received from the general public when granting provisional licenses for mini-grid development. Community groups act as a safeguard for mini-grid sustainability, since they can also serve as regulators of privately owned and community-owned mini-grids. Through this, the community ensures that the project provides expected levels of service through electricity service agreements.

Monitoring and Verification

Are consumers getting what they pay for? Are mini-grids providing the established levels of service and adhering to regulations? Effective monitoring and verification procedures help answer these questions. The U.S. Department of Energy (DOE) and the National Renewable Energy Laboratory (NREL) are developing a quality assurance framework (QAF) that focuses on the quality of service provided by isolated mini-grids in developing countries. The framework does not mandate but rather defines a range of service levels applicable to isolated communities. It seeks to ensure that customers receive a specified level of service, which mini-grid operators are able to provide. National governments, investors and funding organizations can require projects they support to follow the framework’s reporting specifications as a way of collecting standardized performance data.

To build a system of trust around mini-grid development, it is important to establish the levels of service needed and the levels that mini-grids can satisfy in a specific location. In establishing the different levels of service, the QAF considers the quality of the electricity supply, including power problems such as voltage and frequency variations. Another factor is the reliability of power in terms of the number of planned and unplanned outages as well as the number of hours of availability in a 24-hour cycle. The QAF also includes an accountability element, which ensures that a specific level of service is actually received by the consumer by verifying service delivery.

The second element of the accountability framework is performance monitoring by project investors and funding organizations, which ensures that mini-grid operators provide the contracted service and comply with minimum safety and performance standards such as bill collection.

To promote transparency, regulators must clearly outline penalties for non-compliance with accountability mechanisms. If penalties for non-compliance are fines, it must be clearly stated how the revenue will be used. It might also be necessary to have timeframes and an allowance for corrective action before fines are implemented. Mini-grids may also adopt consumer grievance redressal mechanisms, which allow customers to file complaints and receive adequate post-sale service. Consumers also need to be monitored to make sure they respect their contract regarding consumption levels, payments and penalties. If the consumer and the mini-grid operators are unhappy with the outcome, either party can approach the regulator for mediation.

Resources

DOE and NREL (2014). Mini-grid Quality Assurance Framework Fact Sheet and Webinar.
This framework enables isolated mini-grid developers to clearly and transparently indicate the levels of electricity service they can feasibly provide for consumers and provides a monitoring mechanism to track whether or not agreed upon-service levels are being met. The framework is applicable to both alternating current (AC) and direct current (DC) mini-grids as well as renewable, fossil and hybrid systems.

World Resources Institute, National Institute for Public Finance and Policy, and Prayas-Pune Energy Group (2007).The Electricity Governance Toolkit: Benchmarking Best Practice and Promoting Accountability in the Electricity Sector
This is a useful tool for assessing the level of inclusiveness and transparency in the electricity sector. Although designed for the broader electricity sector, it may be helpful when considering the promotion of an inclusive and transparent environment in mini-grid development.

Last updated: February 13, 2018

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