Tariff Considerations for Micro-Grids in Sub-Saharan Africa

This report examines some of the key drivers and considerations policymakers and decision makers face when deciding if and how to regulate electricity tariffs for micro-grids. Presenting a range of tariff options, from mandating some variety of national (uniform) tariff to allowing micro-grid developers and operators to set fully cost-reflective tariffs, it examines various benefits and drawbacks of each. In addition, the report and explores various types of cross-subsidies and other transitional forms of regulation that may offer a regulatory middle ground that can help balance the often competing goals of providing price control on electricity service in the name of social good while still providing a means for investors to ensure high enough returns on their investment to attract the necessary capital financing to the market. Using the REopt tool developed by the U.S. Department of Energy's National Renewable Energy Laboratory to inform their study, the authors modeled a few representative micro-grid systems and the resultant levelized cost of electricity, lending context and scale to the consideration of these tariff questions. This simple analysis provides an estimate of the gap between current tariff regimes and the tariffs that would be necessary for developers to recover costs and attract investment, offering further insight into the potential scale of subsidies or other grants that may be required to enable micro-grid development under current regulatory structures. It explores potential options for addressing this gap while trying to balance This report examines some of the key drivers and considerations policymakers and decision makers face when deciding if and how to regulate electricity tariffs for micro-grids. Presenting a range of tariff options, from mandating some variety of national (uniform) tariff to allowing micro-grid developers and operators to set fully cost-reflective tariffs, it examines various benefits and drawbacks of each. In addition, the report and explores various types of cross-subsidies and other transitional forms of regulation that may offer a regulatory middle ground that can help balance the often competing goals of providing price control on electricity service in the name of social good while still providing a means for investors to ensure high enough returns on their investment to attract the necessary capital financing to the market. Using the REopt tool developed by the U.S. Department of Energy's National Renewable Energy Laboratory to inform their study, the authors modeled a few representative micro-grid systems and the resultant levelized cost of electricity, lending context and scale to the consideration of these tariff questions. This simple analysis provides an estimate of the gap between current tariff regimes and the tariffs that would be necessary for developers to recover costs and attract investment, offering further insight into the potential scale of subsidies or other grants that may be required to enable micro-grid development under current regulatory structures. It explores potential options for addressing this gap while trying to balance stakeholder needs, from subsidized national tariffs to lightly regulated cost-reflective tariffs to more of a compromise approach, such as different standards of regulation based on the size of a micro-grid.takeholder needs, from subsidized national tariffs to lightly regulated cost-reflective tariffs to more of a compromise approach, such as different standards of regulation based on the size of a micro-grid.