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09.07.2019, Taarifa Team

Affordable Electricity For Eight Million Rwandans Or REG’s Profitability – What Does Government Choose?

On June 25, the World Bank launched the 14th edition of Rwanda Economic Update, including a special update on “Lighting Rwanda”, which takes stock of progress made in delivering affordable, reliable and clean electricity.

The World Bank report says Electricity access has increased over five-fold since 2010, making Rwanda a global front-runner in electrification.

Generation capacity has tripled, Green House Emissions intensity was cut by more than half, and supply sources were diversified between 2010 and 2019.

While the World Bank praised the government for the positive progress made, in its report, it does not believe the government will achieve its targets.

The World Bank report indicates that the cost of electricity supply in Rwanda remains excessively high, among the highest in the region.

The high cost of electricity supply, about US$0.28 per kWh, is mainly attributed to three major factors.

One is lack of domestic, low-cost energy resources. Secondly, rapid expansion of the generation sector without adhering to least-cost planning principles; and thirdly, the absence of competitive procurement of generation capacity.

The high electricity costs are a huge problem, especially for the low-income Rwandans, over eight million people that currently don’t have electricity.

They use unhealthy and dangerous firewood, kerosene lamps and candles, that provide bad quality lighting. Even a 60 Lumen LED lamp provides six times more light than a kerosene lamp.

One would expect that the government does its utmost best to provide these people with affordable electricity, though, surprisingly, this is not the case.

After the sound Rural Electrification Strategy, the government decided that the profitability of REG, the national utility company, is more important than affordable electricity for millions of Rwandans.

To understand what is going on in the energy sector, one has to go back to 2016.

On April 27, 2016 the cabinet approved the Rural Electrification Strategy (RES) to ensure all Rwandan households have access electricity by 2021 using systems ranging from stand-alone off-grid solar home systems, mini-grid connection to grid connection.

When in 2018 it became clear that no way the 100% access target would be achieved by 2021, the government changed 2021 in 2024.

Another remarkable change took place in the government’s approach to achieve 100% access to electricity.

In the RES, it was stated that for determining the best electricity solution for a family (grid connection, mini-grid connection or solar home system) one should look at the electricity needs of a single family and the amount of money the family can spend on electricity (affordability).

Last year in the National Electrification Plan (NEP), the government ‘forgot’ the needs of families and what is affordability for them.

In NEP, the starting point is not Rwandan families but a technocratic objective of REG; of having 52% the households getting access to electricity through a grid connection.

Currently off-grid connection is at 14%. Of the total national electricity mix, solar contributed only 5% by 2018.

For most of the about 1.8 million Rwandan families without electricity, a grid connection in the next five years is an unattainable promise.

First, a national grid connection provides far more electricity than most of the 1.8 million families need.

Secondly, it is much more expensive than the electricity produced by a solar home system (SHS).

So, implementing the NEP defeats the immediate interest of the 1.8 million families who are living in the dark now.

It should also be noted that Rwanda needs US$1.8 billion to implement the national electrification plan, a resource that does not seem to be easily secured.

Why would the government do something that is against the interests of the people?

The reason is that since 2017, REG has become a ‘real’ company, meaning that the main objective of REG is realizing a market level Return on Investment.

REG makes money with connecting households to the grid. It doesn’t make money when families buy a SHS.

This also explains the change in strategy, from the Rural Electrification Strategy to the National Electrification Plan: from the interest of families first, to the profitability of REG first.

REG’s profitability is also why the government in August 2018 introduced the Ministerial Guidelines on Minimum Standards for SHS.

Initially the government developed and introduced these standards without consulting solar companies and Development Partners, attracting unpleasant reactions from these stakeholders.

These reactions resulted in discussions between the government and the stakeholders and adjustments were made, though essential elements of the standards remained unchanged.

The problem is that the standards make it impossible for solar companies to sell SHS that are affordable for families without electricity.

When selecting a suitable SHS, two things are relevant for families.

One, the service level the system provides – how many lamps, how many hours of light per day, how many hours phone charging per day, how many hours radio charging per day, etc – and two, the warranty period. The technical specs of the system – capacity of battery, capacity of solar panel, etc. – are irrelevant for families.

While the government says that the standards are meant to protect Rwandans from bad quality SHS, strangely, however, the main effect of the standards is a price increase, which makes SHS unaffordable for a significant part of the 1.8 million households.

This price increase is caused by the fact that the standards dictate the minimum capacity of the battery and solar panel of a SHS.

In the August 2018 and March 2019 version of the standards, these capacities were explicitly stated.

In the June 2019 version, they are stated implicitly.

Article 5 of the standards says: (the SHS shall) supply the above loads (number of hours of light; number of hours telephone charging; number of hours of radio) for least one day without input from the solar module / when there is no sun.

This means that the solar panel and battery need to have a capacity for two days of electricity.

While the internationally accepted and applied (SE4ALL Tier 1) standard requires that a SHS delivers the services (hours of light, phone charging and radio) only during one day, the government requires double these services.

The standards also require three 120 lumen lamps (lumen are a measure for brightness) that burn at least 4 hours per day. This means 1,440 lumen hours per day. While in the SE4ALL Tier 1 standards the minimum is 1,000 Lumen hours per day. In a layman’s definition, a lumen is a measure of the total “amount” of visible light in some defined beam or emitted from some source.

So, the government requires 44% more lumen hours per day than the internationally accepted and applied standard.

This means that in Rwanda the batteries of SHS need to be bigger, about 15%.

The government standards have the effect that the price of a SHS, the cheapest already more than US$60, will go up with US$20-30, which is very significant for Ubudehe 1 and 2 households.

With its SHS standards the government makes electricity unaffordable for a significant part of the population.

The ministry of infrastructure and REG are closing their eyes for the fact that, for over eight million Rwandans, a 3-lamp SHS (compliant with the SE4ALL Tier 1 standard) is a huge improvement compared to their current situation with bad quality lighting, no phone charging and no electricity for their radio at all.

To make things worse, with these standards, the government undermines its own 2024 100% access goal. Why? To enable REG to achieve its Return on Investment target?

One would hope that the government gives higher priority to the interests of eight million poor Rwandans, than to the profitability of REG.



Source: https://taarifa.rw/2019/07/03/affordable-electricity-for-eight-million-rwandans-or-regs-profitability-what-does-government-choose/