to Reduce Energy Poverty Subsidy Structuring, Successes and - - PowerPoint PPT Presentation

Socially Inclusive Electricity Tariffs in South Asia to Reduce Energy Poverty –

Subsidy Structuring, Successes and Failures

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Dr Dr Tila ilak Si Siyambala lapitiya

Th This is presentatio ion is is based on a stu tudy conducted for r th the Asia sian Develo lopment Ba Bank.

The comple lete publi lication is is title titled:

TARIFF APPRAISAL STUDY Balancing Sustainability and Efficiency wit ith in inclusive access

Tilak ilak Siy iyambala lapit itiya

ADB So South Asi sia Work rkin ing P Paper Se Serie ries No 60, 2018

ISS ISSN 2313-5867 (p (pri rint), 2313-5875 (ele (electronic ic)

Can an be downloaded fr from: https: s://www.adb.org/publi lications/tariff-apprais isal-study

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Stu tudy Obje jective

To examine socially inclusive electricity tariffs in six countries of South Asia Bangladesh Bhutan India Maldives Nepal Sri Lanka

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Contents

• Electricity regulatory status, laws, and practice
• Customer classification and tariffs
• Baseline tariffs, subsidies, and features of social inclusion
• Challenges to implement preferential tariffs
• Efficient electricity use and implications for tariff setting
• Policy and regulatory environment for renewable energy

development

• Application of tariffs and charges beyond lifeline tariffs
• Lessons for developing member countries on socially

inclusive tariffs

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Review of Electricity Regulatory Status, Law, and Practice

• General: All 6 countries have a regulatory commission or an equivalent,

and have a process that offers at least a limited degree of transparency in tariff determination. None have implemented truly cost-reflective tariffs.

• Many countries have retained some traditional principles and practices
• Providing gross subsidies to electricity industry
• Setting tariffs to facilitate cross-subsidies across customer groups
• Providing relief to low-income customers
• Pricing electricity based on the purpose of use as against the voltage of supply
• Most countries have unbundled the vertically integrated utilities to

separate corporate entities.

• Electricity utilities are increasingly required to be technically and

financially independent.

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Review of f Customer Cla lassifi fication and Tariffs

• Customer categories such as households, agriculture,

industry, commercial, and public services such as street lighting and water pumps were considered.

• Six states in India were included in the study.
• Assam, Gujarat, Kerala, Madhya Pradesh, Maharashtra, and

Tamil Nadu

• Electricity tariffs to household, commercial, and

industrial customers were compared.

• Household customers were divided based on monthly

electricity consumption; commercial – contract demand; and industrial – maximum demand

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Review of f Tariffs

As of

• f Oct

ctober 2015

Customer Class Electricity Usage (kWh/mth) Maximu m Demand (kW)

Average Unit Price (US cents/kWh) at Unity Power Factor

Bangladesh Bhutan Assam, India Gujarat, India Kerala, India Madhya Pradesh, India Maharashtra, India TamilNadu, India Maldives Nepal Sri Lanka Pakistan

Household Small

30- 4.74 0.00 7.39 2.47 3.92 4.23 6.03 0.00 20.32 3.81 1.95 1.57

Medium

90- 5.36 1.80 7.95 4.64 5.73 7.16 8.04 1.08 20.32 7.04 5.32 3.68

Large

180- 6.15 2.68 7.95 5.22 6.85 8.42 10.12 2.74 21.03 8.16 12.38 4.34

Very Large

600- 8.21 4.04 7.95 6.65 12.26 9.69 15.06 7.41 23.76 10.06 21.30 8.15

Commercial Small

1000- 12.48 5.66 11.37 7.91 9.73 8.84 17.45 12.53 30.77 11.00 12.09 11.50

Medium

58000 180 10.28 4.73 11.38 8.45 9.12 10.29 21.96 13.62 33.81 10.33 14.02 13.58

Large

600000 1500 10.14 4.73 11.38 8.74 8.92 10.31 20.43 13.62 33.87 10.05 13.17 11.63

Industrial Small

5,000 - 9.88 5.66 7.38 7.58 9.58 9.86 8.86 9.66 33.25 8.83 6.81 10.40

Medium

65,000 180 9.98 4.73 10.39 7.15 10.30 11.13 13.61 11.21 33.82 8.14 8.81 9.82

Large

270,000 600 9.86 4.73 10.24 7.70 10.30 12.50 12.09 11.21 33.86 7.97 8.46 9.77

Very Large 1,050,000

2250 9.69 3.71 10.24 7.67 10.30 12.50 12.09 11.21 33.87 7.10 8.46 9.72

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All countries provide “life-line” tariffs to households

Comparison of Average Electricity Price for Household Customers

As As of

• f Aug

August 2019

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Commercial customers pay “exorbitant” rates in in some countrie ies

Comparison of Average Electricity Price for Commercial Customers

As As of

• f Aug

August 2019

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In Industrial Tariffs are Moderate

Comparison of Average Electricity Price for Industrial Customers

As As of

• f Aug

August 2019

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Baseli line Tarif iffs, Su Subsid idie ies, and Features of So Socia ial l In Inclu lusio ion

Electricity Subsidies by Category as of October 2015

• Tamil Nadu provides a 100% subsidy to handloom weavers
• States of Kerala and Maharashtra provide subsidies for below poverty

line (BPL) customers

• Subsidies are provided for agricultural customers in the studied Indian

states except Madhya Pradesh

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Baseline Tarif iffs, , Subsid idie ies, and Featu tures of Social In Inclusion

• Significantly subsidised electricity is provided to small

households/low users

• Bhutan provides subsidies to low voltage rural

customers of all categories. (Free to very small rural households)

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Baseline Tarif iffs, , Subsid idie ies, and Featu tures of Social In Inclusion

• None of the countries offer any special tariffs to customers

based on gender.

• Andhra Pradesh in 2008 and in Maldives in 2015 discussed

to provide gender based subsidies, but they have not been implemented.

• Nepal, Sri Lanka, and the states of Assam, Maharashtra, and

Tamil Nadu in India offer concessionary tariffs to rural or domestic industries (or small industries), where women are likely to be the dominant beneficiaries.

• Tamil Nadu offers a special tariff for handlooms (free

electricity). About 53% of handloom workers are women.

Gender Analysis of Tariff Structures and Subsidies

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Challenges to Im Implementation of f Preferential Tariffs

• Policies on subsidies vs market pricing
• Mechanism employed to target subsidies
• A study on Cape Verde, Rwanda, and Sao Tome and Principe

shows that subsidized connections would strongly target poor compared with consumption subsidies

• Need comprehensive analysis of the cost of supply, share of

subsidies targeted by socially inclusive tariffs, and alternative tariff structures including VDTs

• Poor definition of subsidized customer groups
• Fully targeted subsidies are difficult to implement because, a

regular assessment of customer’s financial status is required.

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Challenges to Im Implementation of f Preferential Tariffs

• Subsidies committed by the government: how do they

finance it?

• Bhutan – Allocates subsidies by foregoing the royalty due to

the government from hydro power plants

• Assam – State government commitment in subsidies is included

in the revenue calculation

• Madhya Pradesh – Cross subsidy is limited to ±20% of the

average cost of supply, does not rely on government subsidies

• Sri Lanka – Tariff decisions are silent on the subsidy

commitment by the government, the government subsidy not received adds to the financial loss of the utility

• Bangladesh and Nepal – Subsidies are operational, but require

further documentation of the costs of supply, and to clearly identify how the subsidized customer costs are financed

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Beneficiary ry Targeting is is Poor in in Many Countries: Sri i Lanka sit ituation in in 2016

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Chall llenges to Im Imple lement Preferential Tarif iffs

Summary of Electricity Prices in Selected Asian countries As of August 2019

Customer Class Electricity Usage (kWh/mth ) Max. Deman d (kW)

Average Unit Price in USCts (unity p.f.)

Bangladesh Bhutan Assam, India Kerala, India Madhya Pradesh, India Maharashtra, India Tamil Nadu, India Malaysia Nepal Pakistan Philippines Singapore South Korea Sri Lanka Thailand Vietnam Household Small 30

• 4.71

0.00 7.43 3.94 4.25 6.06 0.00 5.19 3.79 1.57 17.91 17.47 5.71 1.95 9.59 6.44 Medium 90

• 5.33

1.77 7.99 5.76 7.19 8.09 1.09 5.19 6.99 3.70 16.99 17.47 5.01 5.32 10.92 6.54 Large 180

• 6.11

2.63 7.99 6.88 8.46 10.17 2.76 5.19 8.11 4.35 16.76 17.47 7.25 12.38 11.68 7.08 Very Large 600

• 8.15

3.96 7.99 12.33 9.74 15.14 7.45 9.20 9.99 8.18 19.23 17.47 24.14 21.30 13.27 9.56 Commercial Small 1,000 4 12.39 5.55 11.43 9.78 8.89 17.54 12.59 11.77 10.92 11.55 17.35 17.47 7.82 12.09 13.70 10.38 Medium 58,000 232 10.20 4.64 11.44 9.17 10.34 22.07 13.69 11.58 10.26 13.63 16.01 16.21 8.69 14.02 13.20 10.10 Large 600,000 2400 10.07 4.64 11.44 8.96 10.36 20.54 13.69 11.58 9.98 11.67 15.55 14.69 8.59 13.17 12.77 9.36 Industrial Small 5,000 20 9.81 5.55 7.42 9.63 9.91 8.91 9.71 10.44 8.77 10.44 15.59 17.47 7.15 6.81 14.17 6.95 Medium 65,000 260 9.91 4.64 10.44 10.35 11.19 13.68 11.27 10.84 8.08 9.86 14.82 16.21 6.93 8.81 13.20 6.66 Large 270,000 1080 9.79 4.64 10.29 10.35 12.56 12.15 11.27 10.63 7.92 9.81 14.99 16.10 8.82 8.46 12.77 6.45 Very Large 1,050,000 4200 9.62 3.64 10.29 10.35 12.56 12.15 11.27 10.07 7.05 9.76 13.83 15.33 8.43 8.46 12.38 6.29

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Effic ficie ient Elec lectric icit ity Use se and Im Impli licatio ions for r Tarif iff f Se Settin ing Household Electricity Consumption Levels in Each Block and Prices in Sri Lanka, June 2017

5 10 15 20 25 30 0% 2% 4% 6% 8% 10% 12% 14% 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 Average price of electricity (LKR/kWh) Share of household customers/ consumption Customers Consumption Electricity Price

• Electricity consumption is sensitive to the significant increase in prices

beyond lifeline block of consumption at 60 kWh/month.

• Customers using over 180 kWh/month are 2.3% of all households. 19

Efficient Electricity Use and Implications for Tariff Setting

• Many countries have introduced regulations on

minimum energy performance standards and enforced through appliance labelling.

• Information on tariff-setting activities explicitly

considering energy efficiency is not available.

• Regulatory commissions focus more on supply-side

efficiency.

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Polic licy and Regula latory ry Envir ironment for Renewable Energy Develo lopment

• India, Nepal, Maldives, and Sri Lanka positively encourage renewable

energy development trough net-metering schemes.

• Examples of renewable energy opportunities for livelihood support
• Andhra Pradesh – allows a group of persons to set up solar power projects up

to 1 MW which is treated as collective generation

• Sri Lanka – households can rent its roof space to a third party to develop solar

PV facilities which provide an opportunity for low user households to earn an extra income while their electricity usage up to lifeline quantity would be fully paid for 7 years.

• Community-owned renewable energy facilities
• Sri Lanka – a block of 25 MW out of 375 MW was proposed (but not

implemented) to be designated as a “community wind block” in Mannar Wind Park

• Rural, low-income communities should be empowered to move to commercial

development of renewable energy

• It is unlikely that community projects will benefit communities as an additional

income source without government or utility intervention

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Appli licatio ion of f Tarif iffs and Ch Charges Be Beyond Lif Lifeli line Tarif iffs: 1

• Project Review – Gender-Inclusive Access in Sri Lanka
• Component B of the Project Improving Gender Inclusive Access to

Clean and Renewable Energy in Bhutan, Nepal, and Sri Lanka

• Subcomponents: providing a free electricity connection to more

than 3,000 households; capacity building of 750 people including 200 women on energy-based livelihoods; awareness raising of 10,000 newly electrified households about safe and efficient use

• f electricity and energy-related livelihood opportunities
• 82% of households were the beneficiaries of government’s

poverty alleviation program “Samurdhi”

• 98% had their monthly income below the national mean.
• Nearly ¼ of the beneficiaries were women-headed households.

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Appli licatio ion of f Tarif iffs and Ch Charges Be Beyond Lif Lifeli line Tarif iffs: 2

• Project Outcomes
• Social benefits
• Better and brighter lighting
• Convenience for women in household chores
• Free of harmful emissions
• More entertainment for family
• Increased sense of security
• Economic benefits
• Reduction of costs on kerosene
• More convenient environment for women’s livelihood activities
• Lack of access to investment capital, markets, and technology;

limited knowledge and capacity; and household obligations are the main barriers to initiate economic activities

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Appli licatio ion of f Tarif iffs an and Ch Charges Be Beyond Lif Lifeli line Tarif iffs: 3

• Project Review – Gender-Inclusive Access in Sri Lanka
• Component B of the Project Improving Gender Inclusive

Access to Clean and Renewable Energy in Bhutan, Nepal, and Sri Lanka

• Study showed that the provision of access to electricity alone

does not trigger electricity use for economic opportunities by poor and vulnerable women. Continued interventions and support for productive economic activities is needed.

• Changes in policies to trigger interventions to increase access

to, and affordability of, electricity and its associated technologies are required.

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Le Lessons for r Develo lopin ing Member Co Countrie ies on So Socia iall lly In Inclu lusiv ive Tarif iffs

• Improved analysis and information on lifeline tariffs
• Improved definition and performance of lifeline tariffs
• Improvement of targeting lower-income households and

female-headed households

• Improved analysis of benefits of electricity to women and

socially disadvantaged groups

• Connection subsidies needed as much as consumption

subsidies

• Connection and wiring to be included as a standard cost in

distribution network expansion investments ?

• Electricity for livelihood development- what more to be

done

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THANK YOU

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