Mainstreaming mini-grid tariff settlement tools and methodologies across Sub-Saharan Africa Regulators
Governments have an important role to play in facilitating private sector participation in the African mini-grid space. This is because there is a growing interest from the private sector in the development, financing, operation and management of mini-grids to support implementation of universal energy access goals.
A tailored approach to tariff regulation is an effective way to mobilise private sector investment in the sector as mini-grids tariff frameworks have a strong influence on the viability and sustainability of mini-grids, notably by affecting the operators’ ability to set end-user tariffs. Although the expectations vary, tariffs as one of the main revenue streams affect project cash flows, the availability of funds for management, operation and maintenance, and cost recovery.
Cost-covering tariffs are one way of ensuring economic viability for private sector mini-grids. Mini-grid tariffs tend to be higher than those for the main-grid – this disparity is often viewed through the lens of equality and fairness between rural and urban consumers. In this light, some countries impose national uniform tariffs (or keep mini-grid tariffs close to those of the main-grid), that are usually too low to allow sustainable mini-grid operation. With decreasing costs of renewables, the case for differentiated tariffs has strengthened.