A Utility Approach to Accelerate Universal Electricity Access in Less Developed Countries: A Regulatory Proposal

How can we “think big” for access to electricity: the ECoF

We are aware of the daunting size of the issue and that often universal access is not achieved even when government statistics say that it is. We know that a $50 bn/year investment flow is required, while progress is unequal and discontinuous and it meets obstacles. Over all, we know that what remains to be done is largely a different task with respect to what has been done so far: it is an uncertain mix of grid extension, mini-grids and isolated home systems, in contexts where responsibilities are ill defined and regulation is lacking.

A group of researchers at the Massachusetts Institute of Technology led by Ignacio Pérez Arriaga has advanced the proposal of a new business model that could be adopted in many countries and adapted to local conditions. It could help those who care to “think big” and face the issue at a country level, and yet in a way that would support and feed local initiatives. They called it “the  Electricity Company of the Future, ECoF”.

The starting consideration is that incumbent companies have largely failed. They provide an inadequate service. They are chronically unprofitable, and even insolvent, unable to function without recurrent state bailouts. Thay can neither finance new growth nor involve private capital. They have let an adversarial relationship develop with their customers. They cannot but miss the opportunity to combine the three dominant modes of electrification—grid extension, mini-grid, and standalone solutions— which is necessary to attain electricity access.

The new business model of the ECoF is based on an investigation of the factors underlying such failure, and on an examination of practical alternative business models to replace the nearly universal government-owned power company model. It is built around the concept of an enhanced distribution utility. Its fundamental role is to provide electricity services in underserved areas.

The ECoF has four basic characteristics.

  1. An obligation of electricity supply to all existing and potential custom­ers in the assigned territory, by any electrification mode. It would be responsible for the supply to all consumers in some assigned territory via any technical means: grid connection, mini-grids or stand-alone systems, and even battery charging. The off-grid solutions could either be provided by the company, outsourced to franchised developers or left to independent developers under the supervision of the regulatory agency and the distribution company.
  2. Substantial private participation. In general, it would involve ownership participation and management responsibilities of a large private energy firm with sufficient financial muscle in the incum­bent (typically publicly-owned) distribution company and technical expertise to deal with last mile distribution issues and the capability of effective consumer engagement.
  3. Recognition of the differences, particularly in a rural context, between network operations and activities of purchasing wholesale electricity and selling it to end consumers, or facilitating them to secure access otherwise. Only the former operations are a natural, hence regulated, monopoly. The latter activities require direct interactions with all customers connected to the main grid or the mini-grids under control of the company, and also with those consumers that are supposed to be supplied with solar home systems. Some of these activities should be regulated very lightly, if at all, while others have to be su­pervised more carefully.
  4. Focus on a more integrated and consumer-centered approach. The company will improve service quality, increase communication and interaction with customers, spread technical knowledge and awareness of financial opportunities, leverage electrification to promote productive uses of electricity.

The structure and scope of the company should be adapted and implemented differently in each country.

This is not a recipe for solving all problems, but an important suggestion that deserves attention and debate.

 

IGNACIO J. PÉREZ-ARRIAGA, ROBERT STONER, ROXANNE RAHNAMA, STEPHEN J. LEE, GRÉGOIRE JACQUOT, ERIC PROTZER, ANDRËS GONZALEZ, REJA AMATYA, MATTHEW BRUSNAHAN, PABLO DUEÑAS, and FRANCISCO J. SANTOS,  “A Utility Approach to Accelerate Universal Electricity Access in Less Developed Countries: A Regulatory Proposal” in Economics of Energy & Environmental Policy, vol.8 issue 1