Saturday, March 13, 2010

Eight Steps to Successful Rural Electrification Programs

The pace of rural electrification over much of the developing world has been painfully slow, especially in South Asia and Africa. Rural electrification programs can undoubtedly face major obstacles. The low population densities in rural areas result in high capital and operating costs for electricity companies. Consumers are often poor and their electricity consumption low.  This post is on grid rural electrification and there will be a similar future post on offgrid rural electrification.
The Challenge of Rural Electrification:  D. Barnes

Yet in spite of these problems, many countries have been quietly and successfully providing electricity to rural areas. In Thailand, well over 90 percent of rural people have a supply. In Costa Rica, cooperatives and the government power utility provide electricity to nearly 100% percent of the rural population. In Tunisia, over 90% percent of rural households already have a supply. In studying countries like these and others there appear to be 8 steps to achieving successful rural electrification. These steps are taken from my book called The Challenge of Rural Electrification: Strategies for Developing Countries. that examined 10 successful programs from around the world including the developed countries of the United States and Ireland. I know that it appears these programs are in middle to high income countries, but many were low income when they initiated their programs. 

To read more click below to continue.

Set up effective institutions to deal with problems. Most successful programs have a specialized institution that deals with and promotes rural electrification. The exact nature of institutional structure does not appear to be critical, as a variety of approaches have been successful. They include a separate rural electrification authority (Bangladesh); setting up rural electric cooperatives (Costa Rica); allocating rural electrification to a new department in the national distribution company (Thailand); or delegating it to a specialized office within the utility (Tunisia). However, there must be a high degree of operating autonomy so the implementing agency can pursue rural electrification as its primary objective without significant political constraints.

Electricity  in Rural Bangladesh: Photo WB Dhaka
Government commitment and dealing with the political dimension. All rural electrification programs have subsidies for the capital costs of expansion. This use of public funds for rural electrification often leads to political interference at national and local levels. The politicians regard public funding as giving them rights to interfere, but experience shows that this can be quite damaging. Once technical and financial decision-making is undermined in the implementing agency because of political string pulling, organizational goals are undermined. However, sometimes political pressure can be turned into a positive force as in Thailand where local politicians were encourage to raise and contribute funds, so that their constituents could receive electricity before the planned time.

Establishment of clear planning criteria for rural electrification. Grid rural electrification is often a step by step process which starts with the most promising high population growth areas and then moves on to more and more remote populations. Successful rural electrification programs have all developed their own system for ranking or prioritizing areas for rolling out the electricity supply. Capital investment costs, level of local contributions, and density of consumer, are among the factors normally taken into account. In Costa Rica, the ranking of communities was based on their population density, level of commercial development, and potential electricity consumption.

Subsides for grid expansion capital costs. In most successful programs, a substantial proportion of the capital has been obtained at discouned interest rates or from outright grants. The program in Costa Rica started with low interest rate loans. In Tunisia, all capital expansion costs were covered by government grants. Having access to such low cost financing and subsidies need have no ill-effects on the implementing agency or the rural electrification program. But such loans and grants should never be provided to companies that are not covering their operating and maintenance costs through revenue collection. This will only worsen their financial position that ultimately results in poor customer service.

Tunisia Rural Grain Storage: Photo STEG
Charging the right price for electricity. All the successful programs reviewed in the case studies placed a strong emphasis on covering their operating costs through revenue collection. Cost recovery is essential for the long-term effectiveness of rural electrification programs. When cost recovery is pursued, many of the other program elements can fall into place. Rural electrification prices set at realistic levels sometimes even leads to energy costs savings for new customers as they reduce their kerosene lighting costs. Charging the right price allows the electricity company to provide an electricity supply in an effective, reliable, and sustainable manner to an increasing number of satisfied consumers.

Lowering the barriers to obtaining a supply. The initial connection charges demanded by the power distribution companies for new customers are often a significant barrier to the adoption of electricity by rural families. They often are even more important than the monthly electricity bill. Reducing these connections charges, or spreading them over a several years, even if it means charging more per kilowatt hour of electricity, allows larger numbers of low income rural families to obtain a supply. In Bolivia, for example, a small local grid, in spite charging 25 to 30 cents per kilowatt hour, immediately doubled its number of consumers when it offered them the option of paying for the connection cost over 5 years. In Tunisia the connection charge is over 100 US dollars, but households can spread the payment over 2 years, which amounts to less than 5 US dollars per month.

Benefits of community involvement. Traditional thinking in many utilities is often oblivious to the importance of local community involvement. Rural electrification is seen simply as a technical matter of stringing lines to grateful consumers. The case studies show clearly that rural electrification programs can benefit greatly from the involvement of local communities - or suffer because of its absence. There are many innovative ways to do this. In Bangladesh consumer meetings were held before the arrival of the electricity supply, helping to avoid costly and time-consuming disputes over rights of way and construction damage. In Thailand community contributions in cash or in kind were often the decisive factor in bringing areas within the scope of the rural electrification program.

Reducing construction and operating costs. There are major opportunities for the reduction of construction and operating costs of rural electrification in most countries. Where the main use of electricity is expected to be for lights and small appliances, there is no reason to apply the design standards used for much more electricity intensive urban systems. In many cases, careful attention to system design enables construction costs to be reduced by up to 30 percent, contributing significantly to the growth of rural electrification coverage. Each country will have its own cost-saving opportunities for rural electrification planners. Costa Rica, the Philippines Tunisia and Bangladesh adopted the well proven low cost single-phase distribution system that has been used in the US rural electrification program since the 1930s. There are some locations that can benefit from single wire earth return systems which can be even less expensive.

For resources on this topic, I am going to limit it to one of the case studies that was completed as part of the work described in this blog.  It is a longer report called Rural Electrification in Tunisia: National Commitment, Efficient Implementation, and Sound Finances.

Note:  Much of this post was derived from previous work by me and Gerald Foley.

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