July 29, 2017

Principles

AMDA is committed to working collaboratively with policy-makers, government authorities, regulators, national utilities, professionals, donors and other stakeholders to build an optimal energy network based on innovation and adoptive clean technology that will meet the needs of African economies and citizens today and in the decades to come.

The principles of the Association are the core issues that the sector feels are critical for supporting the role of mini-grids as a key component in providing reliable, affordable and sustainable energy access and the achievement of Africa’s energy goals.

 

 

AMDA has 8 principles, divided into two categories: Regulatory and Financial.

 

Regulatory Principles

1. Technical and Safety Standards

Private mini-grid developers adhere to high levels of consumer safety as their highest priority. Developers can and should engage with governments to ensure that mini-grid technical and safety standards are practical, cost-effective, and robust, and allow for seamless integration with the grid when it ultimately arrives.

2. Grid Integration Framework

To attract private sector investment in solving energy access challenges through mini-grids, governments can establish mechanisms to ensure their co-existence with the main grid by:

a) Allowing independently-operated mini-grids to be efficiently and transparently connected to the main grid once it arrives in the area where the mini-grid operates.

b) Enabling the mini-grid to continue operating once the main grid arrives, by buying power from and/or selling power to the main grid in such a way that enables commercial viability of the mini-grid.

c) Allowing independently operating mini-grids to sell their grid infrastructure assets to the national utility in an acceptable, transparent and equitable manner when the main grid arrives.

3. Tariff Framework

a) In the future, energy may be a service rather than a commodity

As new technologies like solar, storage, and smart metering take hold throughout the world, power is increasingly being viewed as a service, rather than a commodity. Traditional tariff models are not yet build for energy being sold as a service, and space needs to be created for this to further evolve. Governments in Africa can ensure that they remain ahead of the curve on the future of the global energy system by continuing to constructively engage with the process of transition from commodity thinking to service thinking.

b) Mini-grids often offer additional value to consumers which may warrant recognition in tariff and/or subsidy approval processes

African governments can stimulate investment in mini-grids by acknowledging that these assets often provide enhanced value to consumers through improved reliability, connection fee financing, appliance financing, and enhanced customer service. It is important to mini-grid developers to ensure that there are mechanisms to reflect this additional social value in commercial terms.

c) A transparent and equitable tariff calculation model is required, which acknowledges that most main-grid tariffs contain a number of inherent subsidies that need to be transparently accounted for

Tariffs for private mini-grids should take into account all of the costs of building and operating the mini-grid including a reasonable return. Governments and donors should acknowledge that most national tariffs are enabled by subsidies in various forms. If private mini-grids are to provide energy at similar prices, the accounting treatment of the respective tariffs will need to be fair and transparent, and recognize the full cost of service provision to ensure a level playing field.

4. Permitting Policies

Most African governments have power project permitting rules that have been written for large-scale projects. Mini-grids can be small, rapidly deployable infrastructure investments that are often not a good fit for existing permitting processes. Governments can ease the burden on mini-grid developers and related authorities without compromising safety or compliance by allowing for both programmatic and tiered permitting.

a) Programmatic Permitting

Programmatic permitting means setting standardized permitting requirements for projects that adhere to similar criteria. For instance, all hydro or solar projects within a certain size range that meet certain technical standards could be built throughout a given region under the same programmatic permit. Many countries in Africa have strong precedents for this approach in their regulatory treatment of telecommunication towers.

b) Tiered Permitting

Tiered permitting aligns the permitting requirements with the size of the project. For example, a government may have no or streamlined permitting requirements for projects that utilize environmentally acceptable technologies and are smaller than 100 kW. Governments could increase the standard permitting requirements for projects between 100-500 kW, with the most involved permitting requirements reserved for large-scale, customized projects.

 

 

 

Financing Principles

5. Subsidy Parity

Many governments in Africa are implementing effective national electrification plans supported by subsidies for connection fees and other costs of grid expansion. Private mini-grid developers acknowledge and applaud these initiatives, but note that subsidy parity for the various mini-grid operators will be essential to create the economic space for a mini-grid utility sector to emerge in countries that impose uniform tariffs.

6. Infrastructure Financing

Mini-grids are capital-intensive, long-term infrastructure investments. In order for the mini-grid sector to transition from proof-of-concept to scale, appropriately designed project finance facilities will be needed. These funds should be sufficiently large to enable meaningful scale for the sector, and have return and timing expectations aligned with the needs of the asset class.

The developers in the sector recognize the need to do their part in catalyzing this funding. One important element in doing so will be creating more standardization of the mini-grid asset class so investors can more clearly understand the projects in which they are investing.

7. Off-Taker Bankability

Because mini-grids do not have traditional PPAs with a single, contracted off-taker, the sector is committed to developing the data sets and frameworks necessary to demonstrate that portfolios of uncontracted off-takers can produce predictable, bankable cash flows. The sector acknowledges that increasing the predictability and accuracy of projecting revenue from its assets will be a critical step for unlocking financing, and that continued structured engagement will be necessary to ensure that such portfolios are accepted by commercial finance providers.

8. Hybrid Energy Systems

Mini-grid developers are committed to a green energy system and a low-carbon future, but due to the intermittent nature of green energy sources, believe that hybrid power sources will be important in the years ahead to ensure that African consumers can have access to affordable power.