An analysis of mini-grid tariff tools in Africa – current solutions, gaps and future opportunities

Off-grid renewable energy solutions will be key to achieve universal access to electricity in Sub-Saharan Africa. It is estimated that between 60-70% of the future electricity supply will come from off-grid systems (both isolated and mini-grids). Mini-grid development is closely tied to national policy decisions and regulatory frameworks. A revision of the power system framework traditionally based on a centralised model is required to create an enabling policy framework for large scale uptake of the decentralised mini-grid sector.

Mini-grids development is hampered by several factors including a challenging regulatory and political environment. This is the case for tariff settlement processes which tend to be cumbersome and a lengthy process for developers and regulators alike. Tariffs as one of the main revenue streams affect project cash flows, the availability of funds for management, operation and maintenance, and investment cost recovery. To address this need, several countries such as Nigeria, Sierra Leone, Kenya and Tanzania have already turned to dedicated mini-grid policies and regulations to support participation of the private sector. Standardised tariff-calculation methodologies have already been adopted by Nigeria, Sierra Leone, Tanzania and Kenya.

Supported by the Carbon Trust, and working with the Africa Mini-grid Developers Association (AMDA) and through its consultant African Energy Services Group (AESG), AFUR has undertaken to develop an enhanced tariff settlement tool for mini-grids that can be used by African regulators. The approach taken is to learn from and share experiences of the five countries that already have tools, supplemented by emerging regulatory best practice in mini grids tariffs settlements.

Following an analysis of the existing standardised tariff-calculation, tools, interviews with the regulators, mini-grid developers and other stakeholders in the 5 African countries (Nigeria, Sierra Leone, Kenya, Tanzania and Zambia), AFUR has prepared a GAP Analysis Report highlighting the findings on uptake and experiences using these tools along with proposals for improvements. The Gap Analysis Report highlights the various strengths and weaknesses of the respective countries’ tariff settlement tools, that forms the foundation for recommendations for developing an enhanced tariff settlement tool.