EGI SouthAf Conf Report V3

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FORUM ON

Clean Energy,

Good Governance &

Electricity RegulationForum Report

Cape Town, South Africa

19-20 May 2010


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Cover: CFL lightbulb, Trinidad, Cuba

Cuba (Paul Keller, 2008)

Right: Urban slum, Cape Town, South

Africa (ickr: Matthew, 2010)


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Forum on Clean Energy,

Good Governance andEliiy Rl

Materials

19-20 May 2010

H by h I f Dy i Afi (I),

Wl R I Py Ey G


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Contents

Forum Report............................................................................................................................................................5

Background Documents......................................................................................................................................... 13

Concept Note............................................................................................................................................. 14

Discussion Paper.......................................................................................................................................... .16

Case Studies

Program for the substitution of electrical home appliances in the residential sector in Mexico .... 20

Luz Aurora ORTIZ SALGADO, Director General for Distribution of Electricity,

and Nuclear Resources, Ministry of Energy, MEXICO

Solar Energy in Gujarat: Some aspects of regulatory decision-making ......................................... 22

Dr. P.K. Mishra , Chairman, Gujarat Electricity Regulatory Commission, INDIA

Solar Energy in Rajasthan................................................................................................................ 26

D.C.Samant, Chairman, Rajasthan Electricity Regulatory Commission, INDIA

Overview of ANEELs experience with energy efciency programs.......................................... 30

Aurelio Calheiros de Melo Junior, Brazilian Electricity Regulatory Agency (ANEEL)

Agenda......................................................................................................................................................... 32

Tis orum is convened with the support o the Foreign and Commonwealth Ofce o theUnited Kingdom (FCO), the Renewable Energy and Energy Efciency Partnership (REEEP), U.S. Agencyor International Development (USAID), and the Afliated Network or Social Accountability (ANSA).

4

Left: Forum participants

including electricity regulators

and members of civil society

organizations.

Forum report


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Clean Energy, Good Governance and Electricity Regulaon

Forum Report

Electricity regulators in the rapidly growing emerging economies of India, South Africa, Brazil and Mexico face similarchallenges. Clean energy options are supporting their efforts to secure adequate electricity to power economic developmen

without compromising local and global environmental benets, but also presenting complex tradeoffs.

The Forum on Clean Energy, Good Governance and Electricity Regulation hosted by the World Resources Institute (USA)

Idasa (South Africa) and Prayas Energy Group (India) on 19 -22 May 2010 created a unique platform for regulators from

these countries to share their insights and experiences designing new programs to support energy efciency and renewable

energy as a way of meeting societal electricity needs.

Regulators in each country have taken important steps to design and implement clean energy programs, including energy

efciency (EE) and renewable energy (RE) within a very short period of time. In many cases, these programs have been

prompted by their national governments emerging efforts mitigate global climate change, which has enabled regulators

to take bolder measures. Participating regulators highlighted their commitment to increasing their efforts to promote cleanenergy at home, as well as the need for more opportunities to share experiences with each other.

This brief report summarizes the Forum discussion which was held under the Chatham House Rule. The World Re-

sources Institute (WRI), Prayas Energy Group, and Idasa have identied key insights and potential next steps

All presentations and background materials from the Forum are available online at:

http://electricitygovernance.wri.org/events/2010/05/2010-forum-clean-energy-good-governance-and-electricity-

regulation

..............................................................................................................................................................

Clean Energy, Good Governance and Electricity Regulation 5
http://electricitygovernance.wri.org/events/2010/05/2010-forum-clean-energy-good-governance-and-electricity-regulationhttp://electricitygovernance.wri.org/events/2010/05/2010-forum-clean-energy-good-governance-and-electricity-regulationhttp://electricitygovernance.wri.org/events/2010/05/2010-forum-clean-energy-good-governance-and-electricity-regulationhttp://electricitygovernance.wri.org/events/2010/05/2010-forum-clean-energy-good-governance-and-electricity-regulation


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Driving Investment in Renewable Energy

Renewable energy technologies offer many benets, with-

out many of the negative environmental impacts associated

with conventional fossil fuels. But it can be a challenge to

meet the higher up front capital, and manage the intermit-

tency of some forms of renewable energy. In addition, issues

related to siting new infrastructure, performance monitoring,and corruption are as pertinent for renewable energy tech-

nologies as they are for conventional energy technologies.

Electricity regulators have been at the frontlines of efforts to

introduce renewable energy technologies into the electricity

mix. They have used a number of tools including specialised

contracts, renewable energy targets and purchase obliga-

tions, and feed in tariffs to drive investment in renewable

energy.

Self Supply of Wind Energy in Mexico

Comisin Federal de Electricidad (CFE), the state-ownedutility, owns the grid and generates about two thirds of Mex-

icos electricity. Independent Power Producers (IPPs) gener-

ate the remaining balance. IPPs have generally been large

commercial or industrial consumers that generate more elec-

tricity than needed for their own operations what is known

as the self-supply sector. They access the grid through mod-

el contracts issued by the Energy Regulatory Commission

(CRE). CREs mandate does not extend to setting prices

for CFE, the state utility. In 2001 and 2006 the CRE issued

model contracts designed to promote private investment by

IPPs in wind energy, by recognizing the intermittent nature

of wind power and designing terms that allow supply and

demand to levelise. When the permit holder has generated

power in excess of its needs, it may supply the grid at the

prevailing public service rate. When there is an emergency

need for power, the government pays 1.5 times the tariff rate

for self supply electricity. The permit holder also receives

a capacity credit based on the monthly average power pro-

duced during the system peak period on week days. At the

end of the year the remaining surplus can be sold to CFE.

When its own generating capacity is insufcient to meet its

needs, the permit holder can access grid electricity at the

prevailing public service rate. Essentially, by allowing elec-tricity to be accumulated and withdrawn, this approach uses

the grid as a bank.

Securing access to the transmission grid has been a chal-

lenge: most wind projects were far away from the existing

grid, and investors were not willing to pay for the additional

transmission and distribution infrastructure required to con-

nect to the grid. CRE stepped in and issued an open season

process to encourage collaborative public-private invest-

ment in the necessary supporting infrastructure. It is worth

noting that there have also been challenges associated with

siting wind farms in Mexico, with local communities par-

ticularly in rural areas voicing concerns about the impacts of

these projects on their lands and livelihoods.

Nevertheless, the Mexican experience demonstrates tha

wind -- and through a similar model contract scheme, bio-mass projects -- can be competitive with the public service

electricity rate. Even without a support mechanism such as a

feed in tariff, in 2009, Mexico has fostered one of the fastest

growing wind markets in the world through this program

New forms of support may be necessary, however, to sustain

and scale up the contribution of clean energy technologies to

the energy supply mix.

CRE was able to build on its experience overseeing emerg-

ing markets for wind energy to inform the design of a new

electricity law which was nally approved in June 2008

That law gives the CRE signicantly greater powers to regu-late the national state owned utilities, and also give it the

mandate to regulate environmental externalities of the elec-

tricity system.

Renewable Energy Purchase Obligations and Feed in Tariffs

in India

The national electricity act of 2003 gives state regulators the

mandate to adopt these targets to promote the use of renew-

able energy. Most states in India now have a renewable en-

ergy purchase obligation (RPO) of 1 6% in place that utili-

ties must meet. In most cases the target is based on actualgeneration of electricity, which requires much larger renew-

able energy generation capacity to be installed. A nationa

generation based RPO of 9% from non-solar renewable en-

ergy technologies and 1% from solar energy technologies by

2015 has been proposed as part of efforts to implement the

National Action Plan on Climate Change. There is presently

17,000 MW of installed renewable energy capacity in In-

dia: achieving this target would require 35,000 MW of wind

biomass and cogeneration to be installed in total, and 58,000

MW of solar capacity.

Rajasthan has specied RPOs for utilities from wind (6% in2009-10) and biomass (1.45%). However, there is a much

larger appetite for investment in solar given Rajasthans arid

climate: 325 investors have registered with the state noda

agencies, representing a potential 9800MW. The Gujara

Electricity Regulatory Commission (GERC) required utili-

ties to procure 0.25 1% of their electricity supply from

renewable sources. So far, 17 Power Purchase Agreements

(PPAs) have been signed in Gujarat, with another 11 in the

pipeline representing approximately 500MW of capacity

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These PPAs are backed up by MoUs to help guarantee that

investors will not renege on the deal.

Renewable energy certicates (RECs) have been promoted

by the Federal government of India so that all states can sup-

port renewable energy, even those who may have limited

domestic RE resources. RECs allow utilities to buy RE from

other states in the country.

The Indian Federal Government, with support from the Cen-

tral Electricity Regulatory Commission (CERC), has pro-

moted the use of renewable energy certicates (RECs), to

allow utilities in states with limited RE capacity, to purchase

RE from those with higher capacity. Efforts to put in place

feed in tariffs for electricity have also been championed in

recent years. As part of its 2009 tariff order GERC approved

a xed rate declining tariff for photovoltaic solar of Rs. 15

per kWh for an initial 12 years followed by Rs.5 per kWh

for the next 13 years; and similarly for solar thermal ener-

gy a tariff of Rs.11 and Rs.4 per kWh for the rst 12 yearsand the next 13 years. The Rajasthan Electricity Regulatory

Commission (RERC) approved a feed in tariff on a cost plus

basis that should allow a return of 16% on equity through a

25 year power purchase agreement. A tariff of Rs 15.78 is

offered for photovoltaic solar electricity, and Rs 13.78 for

solar thermal energy.

It is noteworthy that the GERC tariffs for RE tech-

nologies are lower than those recommended by the

federal CERC, yet it is still succeeding in attractinginvestment. GERCs credibility has been enhanced

by its demonstrated willingness to make independent

decisions about electricity pricing. Indian regulators

note that a degree of competition to attract investment

in RE as emerged amongst states within India as a

result of its federal structure. For some regulators, this

has been an express consideration in the design and

implementation of their feed in tariffs and associated

renewable energy purchase obligations programs.There is an urgent need to bring down the costs of solar en-

ergy particularly if new national targets to bring 20GW ofsolar energy online by 2020 are to be met. If local manufac-

turing capacity for solar energy components emerges, this

may help reduce the costs of solar and enhance the benets

in terms of local job creation and economic value. There

is some evidence that investment in renewable energy can

foster a labour intensive industry from developed countries

such as the UK.

South Africas Renewable Energy Feed in Tariff

The National Energy Regulator of South African (NERSA)

has been proactive in setting a Renewable Energy Feed-in-

Tariff (REFiT), which has sought to kick start investment in

renewable energy technologies. All electricity is purchased

by the state owned utility, Eskom, which has few incentives

to purchase this higher priced electricity. There has alsobeen limited transparency in the processes by which Eskom

makes decisions about purchasing electricity from private

actors.

Efforts are underway to try and put in place an Independent

System Operator that might take on some of Eskoms elec-

tricity purchasing roles and functions. The South African

Department of Energy is also leading an effort to develop a

long term Integrated Resource Plan (IRP2), which will de-

termine what share of the electricity mix will be met by re-

newable energy. It will also shape the criteria that determine

which Independent Power Producers (IPPs) are awardedlicenses. These criteria may include social considerations

including the ability of the licensee to extend access to those

currently not served by the electricity grid. South African

laws specify that new generation can only be licensed if it is

included in the IRP.

South Africas feed in tariff for photovoltaic solar energy

may in fact be almost twice that used by Indian state and

central regulators. This wide divergence illustrates the dif-

culties of accessing accurate and reliable information abou

the real costs of renewable energy. Participating regulators

noted that a comparison of the costs that factored into theSouth African and Indian feed in tariffs for renewable energy

and approaches used would be extremely valuable.

Regulating off-grid systems to protect end-users

The use of renewable energy technologies to extend access

to electricity to remote communities which are not within

the vicinity of the existing national grid raises new chal-

lenges for electricity regulators. Electrication in rural areas

has often been politicised, causing unsustainable short-term

roll-out of off-grid energy. There is a need to involve loca

research centres and to build local expertise in the provisionand maintenance of off-grid solutions in the long-term. One

of the paradoxes of solar energy development at present is

that the cost of on-grid solar electricity is likely to decline

more quickly than that of off-grid solar, however, due both

to the level of investment in on-grid technology, and because

in rural areas storage incurs high costs and requires mainte-

nance. Rural concessions have been used to attract supplier

of off-grid energy such as solar PV into remote areas, which

are otherwise neglected. Such concessions need regulation

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however, to ensure that consumers are protected from un-

reasonable costs including for system maintenance, and low

quality service. The regulation of off-grid systems requires

new approaches and specialised capacity on the part of the

regulator.

Addressing Informaon Asymmetries

In order to set appropriate tariffs and incentivise utilities to

adopt preferable technologies, regulators need access to in-

formation and analytical capacity of technologies. Without

reliable estimates of the real costs of new renewable energy

technologies, or a comprehensive understanding of the tech-

nical and comparative characteristics of different technolo-

gies, regulators are constrained in their ability to regulate

these technologies.

For example, as Gujarat developed a feed in tariff for so -

lar energy, it found itself inadequately equipped to make aninformed decision about the likely generation capacity fac-

tors for photovoltaic solar technology: estimates identied

in the stakeholder engagement process ranged from 15% to

23%. The impacts of technology learning on costs, and of

indigenous manufacturing, also need to be factored in. There

is a need for more reliable sources of data to inform such

decisions. In addition, however, good monitoring and data

collection as program implementation proceeds are neces-

sary to ensure that more accurate information can inform fu-

ture decisions and reviews of the impact and effectiveness of

programs implemented.

In the US, a quasi-judicial process requires that utilities give

sworn testimonies of their costs, which are then made avail-

able to all stakeholders. Regulators also need to measure and

calculate the impact that tariffs and incentives will have on

the economy. Public consultations and hearings have been

of mixed use in designing rules. In general, it is primarily

industry groups that have come forward with technical infor-

mation, and there has been a decit of input from civil soci-

ety or independent research institutions. Civil society groups

in turn may lack technical and nancial resources and sup-

port to engage effectively. Yet there is a real need to ensure

that accountability for effective design and implementation

of clean energy programmes. There is a need to build the

capacity of consumer groups and civil society to seek such

accountability.

The technical methodologies used in tariff setting, and in

incentivizing investment in renewable energy differ greatly

from regulator to regulator. Good practices are neither well

understood nor shared -- In many ways, we are guring it

out as we go along. There are differences in how capital

costs, capacity utilisation factors, returns on equity, interest

on loan and working capital, tax rates and discount rates are

treated.

Energy Eciency and Demand Side Management

While much is made of the potential for energy efciency(EE), demand side management (DSM), and associated cos

savings, most countries have struggled to make progress in

tapping this potential. Progress has been particularly slow in

developing countries where the focus may be on extending

access to electricity for those who still lack it, even though

there are many opportunities to improve the efciency of ex-

isting systems. A central element of the challenge, of course

is that market and regulatory structures in most countries re-

ward generators and distributors for producing and selling

more electricity rather than less. Usually, electricity utilities

charge per unit of electricity sold, and are therefore incentiv-

ised to sell more electricity.

Many states in the USA have tried to address this fundamen-

tal impediment to energy efciency by introducing utility

revenue regulation methodologies that decoupling revenues

from the volume of electricity utilities sell. Under decou-

pled regulation, utilities are assured a total net revenue per

year, rather than a price per KWh. Capping revenue does no

impact income in the short-run but creates an incentive

framework in which the utility benets from reducing con-

sumption of electricity. This can create new receptiveness

to EE and DSM programs, as they will not detract from the

utilitys net income.

There are many challenges associated with decoupling rev-

enues from electricity sales, however, particularly in a de-

veloping country context. In many cases, electricity sales

are one source of revenue for local service delivery par-

ticularly in cases where local government has jurisdiction

over electricity distribution. The reduction of revenues nec

essary for providing local services is likely to be resisted by

many stakeholders. If decoupling measures are to succeed

substitute revenues for associated actors will also need to

be identied and provided. The difculties of designing and

implementing EE and DSM programs that respond to loca

conditions and stakeholder needs persist even under decou-

pled rate regulation. In India, for example, utility returns on

equity are protected by the regulatory framework, so there

is no need to decouple revenues from sales. While many ef-

forts have been made to put in place EE and DSM projects

there has been little utility responsiveness and interest.

Successful EE and DSM programs should reduce future

demand for electricity. The regulator can play an important

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role in interrogating the realism of future projections for

electricity demand that justify proposed new investments in

electricity generation. To play this role effectively, it can be

helpful to have strong processes to monitor the effectiveness

of energy efciency programs on electricity consumption,

and factor these achievements into projections of electric-

ity demand to avoid overbuilding. The regulator can play

an important role in energy planning processes not just inenforcing plans, but also in informing plans. If the regulator

puts in place robust and transparent frameworks for monitor-

ing its utilities, it can help ground truth projections of fu-

ture demand for electricity and critically assess the viability

of proposed new investments in generation.

Appliance Efciency in Mexico

Electricity tariffs in Mexico are subsidised and the regime

is regressive in that middle income and rich households that

consume large amounts of electricity benet the most from

these subsidies. In the face of pressures to reduce electricityprices, the government sought to reduce household electrici-

ty consumption rather than to further increase subsidies. The

government initiated a large scale home appliance efciency

program to help families save money, which also helped

support the appliance sector in Mexico, which was hit hard

by the economic recession. Any electricity consumer can

go to a store with their electricity bill, and ll out a form to

qualify for nancial support to replace their refrigerator or

air conditioner. The stores are obliged to provide the new,

efcient appliance within 10 days as long as the old appli-

ance is turned in for disposal. Poor households were offered

a combination of grants and relatively low interest loans of

12% (compared to 50% interest loans which are typically

offered to most low income households). High income

consumers were only offered loans. Loans are repaid over

4 years through the electricity bill. To date, 500,000 appli-

ances have been registered for replacement. Rich consumers

were not found to be interested in the programme, however.

Different mechanisms will need to be designed to target high

income electricity users.

A fund of about $250 million per year has also been estab-

lished in Mexico to help improve efciency of technology,and research and development to ensure sustained invest-

ment in energy conservation beyond supply shortages. Al-

though the Energy Efciency Commission in Mexico is not

yet perceived to have much enforcement authority, it is mak-

ing some headway with energy intensive users. There is a

long way to go, however, and the energy efciency law will

likely have to be reviewed in to support more proactive ef-

forts and implementation.

Addressing the Political Economy of Energy Efciency in

India

Indian participants reected on experiences implementing

programmes wherein consumers were encouraged to ex-

change conventional light bulbs with compact uorescent

lights (CFLs). These programs were designed to reduce

by 10MW. But corruption in the procurement processes ofthe utilities implementing the programmes resulted in poor

quality CFLs being purchased. 50% of the CFLs distributed

were faulty. This wasted scarce resources, as well undermin

ing consumer condence in CFLs and the DSM programme

This experience points to the need for better monitoring and

oversight of EE and DSM projects, particularly in procure-

ment processes, including to control the quality of equip-

ment.

The resistance of utilities to implementing DSM programs

has also prompted regulators to explore alternative ap-

proaches to achieving energy savings. To this end, the fed-eral Bureau of Energy Efciency (BEE) initiated an effort to

reach out directly to manufacturers to provide more efcien

home appliances, and a national level CFL programme tha

regulates bulb manufacturers so they meet high standards

The federal government is also initiating an energy efcien-

cy performance target: industries meet approved efciency

targets, and then have the opportunity to trade excess ef-

ciency reductions.

Consumer preferences have a signicant impact on the ef-

fectiveness of EE and DSM programs that target the resi-

dential sector. Rich people tend to live the most inefcientlifestyles, which raises questions about the equity of EE and

DSM programs in developing countries. The introduction o

CFLs, Solar Water Heaters, or different appliances than are

used in rich households may be often perceived as a decrease

in quality of life for poor and middle income households.

Making the Most of a Crisis

Electricity supply shortages can create the political space for

regulators to step up their efforts to improve efciency and

manage electricity demand in the residential, commerciaand industrial sectors.

Public Benet Funding for Energy Efciency in Brazil

Brazil has instituted a range of programs to reduce electric-

ity consumption including the PROCEL initiative imple-

mented by the national ministry of Mines and Energy which

is one of the longest standing energy conservation programs

in the world. In the 1990s a wire charge of 1% on electricity

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sales was established to nance EE and research and devel-

opment in the electricity sector. Part of the fund is overseen

by Brazils electricity regulator, ANEEL, which sets criteria

for selecting programs to be funded to ensure they benet

consumers. The other part (CTENERG) is managed by a

Board, with representatives from government, private sec-

tor and academia, and chaired by the Ministry of Science

and Technology. ANEEL oversees the funds spent by utili-ties. US$863 million has been invested in energy efciency

alone through these funds by utilities since 1997. The re-

sults of these investments have been mixed, however. The

process and criteria by which investments are assessed and

selected warrants more attention, and a exible framework

for measuring results and prompting corrections in course

is necessary. Most importantly, greater transparency about

the impacts and results of investments in EE and research

and development is necessary to enhance accountability for

implementation, and to help build consumer awareness and

support of these programs.

In 2001, Brazil faced an electricity crisis which

prompted the Government to step up its energy con-

servation efforts signicantly. The crisis response

measures had lasting impact: many users made invest-

ments in new, more efcient equipment which reduced

their electricity consumption over the long term as a

result of the incentives and penalties for energy con-

servation that were put in place.

South Africas Power Conservation Programme

South Africa is in the midst of an electricity crisis. Its re-

serve margin is down to 1% when its gas turbine peaking

plants are not operating. When the effects of the electricity

crisis rst became apparent in 2008, efforts were made to

develop a power conservation programme (PCP) to reduce

demand and promote efciency. Initially a reduction of en-

ergy use by 10% for all large energy users was proposed,

users that failed to make this reduction would be charged

punitive tariffs for inefciency. Energy intensive industries

expressed strong reservations about this approach -- and

were very vocal in expressing these concerns in public hear-ings. Furthermore, reducing their consumption to this extent

would violate their contractual obligations to Eskom to pur-

chase a minimum supply of electricity. When the economic

recession hit in late 2008, electricity consumption in South

Africa dropped by 1200 MW (in part because some smelt-

ers stopped operation). As demand dropped, however, so did

Eskoms net income. The government and NERSA made the

decision to halt the PCP, and electricity consumption was

again encouraged.

The fact that Eskoms business model is based on the sale

of large volumes of electricity to nance new investments in

generation infrastructure is central to the challenge of pro-

moting EE and other demand side measures in South Africa

However, since NERSA approved a 25% per year electricity

price increase between 2010 and 2013 in response to Es-

koms request for a 35% increase, tariff structures in SA are

beginning to shift in ways that make EE measures relevanfor the bottom line in energy intensive industries for the rst

time. . And as economic activity picks back up, and demand

rises, mechanisms will be needed to share the limited exist-

ing electricity supply among and between different classes

of users. NERSA is therefore developing new PCP rules. The

PCP will seek to keep the lights on: an energy reduction

percentage will be required of actors in specic to sectors

and they will be charged a signicant penalty for exceeding

allowed consumption. In addition, a standard offer program

to incentivize EE and conservation is being developed. Un-

der the Standard Offer Program, the developer of an energy

efciency programme will be offered a payment per kilowat

hour of electricity saved; the payment will be based on the

avoided cost of electricity generation. Concurrently, efforts

are underway to support the roll out of 1 million solar water

heaters over the next 3 years as government has committed

to further reduce consumption. A proposal has been made to

offer a 30% subsidy on solar water heaters for high income

households, and 100% for low income households.

Progress in getting EE and DSM programmes off the ground

has been slow. But it is possible that creative engagement

with different actors and stakeholders might support prog-ress in implementation. For example in South Africa, local

government plays an important role in electricity distribu-

tion, and also is well placed to support the roll out of ef-

cient home appliances. City governments in South Africa

are also seeking to be proactive on sustainability issues

closer collaboration with local and municipal government

may support the implementation of EE and DSM programs

Brazils experience illustrates that interventions to reduce

electricity consumption in the short term can have long term

benets. It took 9 years for electricity demand to recove

to the point where new investments in electricity generationwere necessary. Serious support of EE and DSM was not

maintained after the crisis had passed, however. In turn, EE

and conservation measures need to be sustained even once

crises have passed, so that expensive investments in new

electricity supply can be avoided. A culture of switching

the lights off has not yet been instilled in most countries

It is a tricky job for the regulator to share out the unhappi -

ness associated with making the shifts to a more efcient

energy system.

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Climate Change and Electricity Regulaon

Participating regulators stressed that climate change has in-

creasingly become an issue of common focus, noting that

this issue was given signicant attention at the World Forum

on Regulation in Athens in 2009. As governments take more

proactive measures to address climate change, regulators

mandates to address these issues are growing. In turn, theproactive efforts of regulators to promote clean energy can

inform the design of national policies to respond to climate

change and reduce the environmental impacts of the energy

sector.

The nature of regulation is to balance the interests of inves-

tors, utilities and consumers: consequently, the function of

the regulators is to question all options proposed by regu-

lated entities. Yet they also require new expertise to address

additional complexities of clean energy technologies and

the personal background and interests of the members of the

commission can make a signicant difference. In the case ofMexico, the members of the board of the regulator include

people who have experience with the environmental sector

(not just the electricity sector), as well as good lawyers and

economists. By contrast, staff of utilities, investors, and gov-

ernment staff tend to have a background in the conventional

energy sector, and greater experience and familiarity with

conventional fossil fuel technologies. Similarly in the cases

of Gujarat and Maharashtra, the regulators brought diverse

prior experience in government including working on agri-

cultural development and environmental issues to their role

regulating the electricity sector.

Regulators are often in a position to take a longer-term view

of decisions than policy-makers, investors or utility ofcials

who tend to respond to focus on short-term pressures, seek

short-term prots, and have immediate capital costs. The

regulator is supposed to transcend the politics of govern-

ment. Its ability to take on new agendas is closely linked

to stakeholder condence in the regulators credibility and

reliability.

Time Will TellRegulators are gaining new experience balancing the re-

quirements of ensuring energy security to support economic

development through innovations that can prompt invest-

ment in clean energy. In so doing, they have to nd new

ways to navigate the realities of institutional capacity, power,

and political economy within developing country contexts.

While new interests in renewable energy have emerged, the

potential for energy efciency remains largely untapped.

This is a crucial arena in which regulators can engage more

proactively but there are signicant challenges encoun-

tered in a developing country context that are quite different

from those encountered by regulators in the US or Europe

Improved oversight, transparency, and accountability may

support greater success on this count.

As an international community of stakeholders in the energy

sector, we are now approaching a stage where enough states

and countries have been experimenting with such mecha-nisms that it would be helpful to take stock of how things

have worked, and identify the key lessons learned. More

generally, comparisons of global approaches to estimating

the costs associated with renewable energy technologies

and the methodologies used for implementing feed in tar-

iff mechanisms would be most useful. Participants proposed

that WRI and the Electricity Governance Initiative would be

well placed to take the lead on such an effort, including dis-

tilling lessons from failed efforts to promote renewable en-

ergy technologies. Such learning is particularly imperative

as the international community explores new mechanisms

to support clean technology deployment around the worldincluding, for example, the proposal for a global fund to help

countries meet the additional costs of a feed in tariff for re-

newable energy.1

Better information about clean energy is needed: there

is an urgent need for objective information on the rea

costs of renewable energy technologies which is updat-

ed in real time and made available to regulators tasked

with overseeing the entry of such technologies into the

energy market. Good monitoring of programs can play

an important role of correcting such information asym-

metries into the future.

Regulators are being proactive in interpreting the

mandates to promote sustainable energy. Regulators

must act within their mandate, which is of course deter-

mined by policy and legislative processes. The relation

ships between regulators, the government, and legisla-

tors are often complex and not without their conicts

Regulators are constrained by policy and legal frame-

works. Nevertheless, there is room for regulators to be

proactive in promoting renewable energy and energy ef-

ciency within their mandates. Growing awareness ofclimate change is creating new space for regulators to

innovate on these issues. Indeed, regulators may be wel

placed to infuse much needed technical information and

implementation perspective into policy and legislative

processes if they are proactive in seeking opportunities

to do so. As one regulator noted, It is the proactivity o

regulators and policy-makers that helps the promotion

of clean energy -- without this you dont get very far.

1. Ui N D f Ei Sil Ai, A Glbl G

Nw Dl f Cli, Ey, Dvl, Db 2009

..............................................................................................................................................................



12/34

Sustained and creative measures to support energy ef-

ciency through electricity regulation are needed: While

regulators are demonstrating signicant creativity in

incentivizing investment in renewable energy, they can

do more support energy efciency. Regulators need to

consider the impacts of energy efciency on electric-

ity expenditures in the short and long term, and as an

alternative to new investments in power plants. Theseconsiderations need to become more central to the tariff

setting process and regulatory oversight of utility per-

formance.

Independent actors and civil society have an important

role to play in seeking accountability for clean energy

programs. Civil society for their part have a responsibil-

ity to engage proactively in the design and implementa-

tion of clean energy programs, with the long term public

interest and viability of markets in mind. In some coun-

tries, civil society and consumer groups have drawn

attention to important problems with the targeting ofincentives for renewable energy. Misdirected incen-

tives will undermine long term condence in markets

for clean energy. Civil society can be more proactive in

seeking accountability for energy efciency and demand

side management programs that meet local needs and re-

spond to stakeholder realities. The implications of tariff

revisions and utility oversight for clean energy also need

to become more central to civil society engagement with

the regulatory process.

Good governance is key to creating viable frameworks

for clean energy in the long term. Processes to feed

the lessons learned from the current phases of innova-

tion into future decisions will be key to building last-

ing frameworks for clean energy that meet the needs of

utilities, investors, consumers, and the broader public

interest.

Sustained opportunities for electricity regulators in de-

veloping countries to share experience are needed. Reg

ulators emphasised the importance of such opportunities

for in depth sharing of experience amongst electricity

regulators to learn from others efforts to overcome simi

lar political, economic and governance challenges.

..............................................................................................................................................................

Forum report12


13/34

Background documents

There is a wealth of emerging practice within regulatory institutions on how to advance and implement sustainable energy

solutions. There may often be more similarities than would initially appear in the issues facing regulators in different

regions of the world when it comes to sustainable energy. This background paper is intended to help frame discussions at

the upcoming Forum on Clean Energy, Good Governance and Electricity Regulation in Cape Town on 20 -21 May 2010.

contents

Concept Note................................................................................................................................................... 14

Discussion Paper................................................................................................................................................. 16

Case Studies

Program for the substitution of electrical home appliances in the residential sector in Mexico .......... 20

Luz Aurora ORTIZ SALGADO, Director General for Distribution of Electricity,

and Nuclear Resources, Ministry of Energy, MEXICO

Solar Energy in Gujarat: Some aspects of regulatory decision-making ............................................... 22

Dr. P.K. Mishra , Chairman, Gujarat Electricity Regulatory Commission, INDIA

Solar Energy in Rajasthan..................................................................................................................... 26

D.C.Samant, Chairman, Rajasthan Electricity Regulatory Commission, INDIA

Overview of ANEELs experience with energy efciency programs............................................... 30 Aurelio Calheiros de Melo Junior, Brazilian Electricity Regulatory Agency (ANEEL)

Agenda............................................................................................................................................................... 32

..............................................................................................................................................................



14/34

..............................................................................................................................................................

A Forum on Clean Energy, Good Governance and Electricity Regulaon

Concept Note

Objective: Convene a select group of electricity regulators, stakeholders, and experts from South Africa, India,Brazil, and

other major economies, including Mexico, the UK, and the US for a focused discussion of the challenges of regulating the

electricity sector to support renewable energy and energy efciency. Proposed date: 20 - 21 May 2010

Venue: Cape Milner Hotel, Cape Town, South Africa

Approach: This two day workshop of 30 40 participants will build on the ongoing work of the WRI-Prayas Electricity

Governance Initiative, and Idasas related efforts to draw attention to governance challenges in South Africas electric-

ity sector. Regulators from emerging economies countries will be invited to share their experiences promoting renewable

energy and energy efciency, and managing the politics and trade-offs associated with such programs. Civil society and

industry stakeholders from the same countries will share their perspectives on these programs. Regulators and experts

from the United States and Europe will offer insights into the keys to the successful design and implementation of sustain-

able energy programs. The emphasis of these discussions will be on decision-making processes, in order to explore how

information sharing, stakeholder engagement, citizen participation, and accountability mechanisms can support successful

programs. We will circulate background papers framing meeting objectives in advance of the workshop, work with par-

ticipating regulators to develop case studies of programs implemented as a basis for discussions, and will prepare a report

summarising the conclusions of the workshop.

Contacts:

Smita Nakhooda World Resources Institute [email protected]

Gary Pienaar Institute for Democracy in Africa [email protected]

This forum is convened with the support of the Foreign and Commonwealth Ofce of the United Kingdom (FCO), the Re-

newable Energy and Energy Efciency Partnership (REEEP), and the Afliated Network for Social Accountability ANSA).

14 Forum report


15/34

..............................................................................................................................................................

Electricity Regulation: An Important Arena for

Advancing Sustainable Development

Expanding access to electricity and improving the quality,

reliability, and security of electricity supply is an urgent so-

cial priority in the growing, democratic economies of South

Africa, Brazil, and India. Regulation is a critically impor-

tant arena in electricity that affects the economic, nancial,social, and environmental aspects of sector performance.

Regulators make decisions that affect the quality, cost, and

accessibility of electricity services, as well as the impacts

of power generation on the environment particularly by

incentivizing energy efciency and facilitating the market

entry of clean renewable energy technologies. Citizens and

policymakers are increasingly looking to electricity regula-

tors, who have historically been primarily concerned with

economic issues related to price setting, to address social

and environmental considerations as well.

It is not easy to align the economic, nancial, social and

environmental aspects of electricity performance. There can

be very real tradeoffs incurred, for example, between the

often higher up front costs of renewable or cleaner energy

technologies, and the need to keep electricity costs afford-

able for the poor. Improving transparency of, and public

participation in, the decision making process can allow

greater awareness of contradictions that must be addressed,

a more equitable framing of problems, and a set of systems

and procedures to manage the inevitable tradeoffs that will

have to be made. Better governance enhances the possibili-

ty of devising and adopting new, innovative and sustainablesolutions to contentious problems. Citizens as well as poli-

cymakers in these countries are increasingly looking at the

regulatory process as an important mechanism to address

inevitable trade-offs, including issues relating to sustainable

development in the electricity sector.

Sharing Strong Practices and Innovations in Regulation

The practice of regulation and rule-making in developing

countries varies widely, and in most countries the state

plays a major role in the generation of electricity and provi-

sion of energy services. Countries such as India and Brazil,

for example, have introduced independent electricity regu-

lators at the federal, state and national level respectively as

part of efforts to restructure and privatise their electricity

sectors. They regulate both public utilities as well as private

actors. In South Africa, regulatory institutions are tasked

with overseeing state-owned electricity utilities.

Regulators, executive staff, and civil society in countries

in emerging economies have accumulated a growing body

of experience with the design of regulatory institutions and

processes, and innovations that promote clean energy, and

protect poor or vulnerable consumers. Indeed, concerns

over energy security-related risks are sparking new interest

in renewable energy technologies as a means to diversify

electricity generation choices and alleviate dependenceon fossil fuels, and energy efciency to reduce demand

for imported energy. But there are few opportunities for

regulators to share and learn from each others experiences

and mistakes. In addition, there are equally limited oppor-

tunities for stakeholders in these countries to draw on the

experiences of countries with more established histories

and experiences with regulation of clean energy.

A Forum on Regulatory Governance and Clean Energy

Leveraging the expertise and partners of the WRI PrayasElectricity Governance Initiative, we propose to convene a

forum to explore challenges and innovative approaches

to promoting clean energy through good regulatory

governance. The workshop will bring together regulators

and their staff, experts, and civil society from South Africa,

Brazil, India, and Mexico. We will also seek to include

regulators and experts from Europe, the United States, and

the UK to share their experiences.

Participating regulators will be asked to share brief case

studies of initiatives that their institutions have taken to

promote clean energy, to provide a substantive basis for thisdiscussion. The discussion will emphasize the procedures

by which these efforts have been advanced, in order to

draw out lessons on how they can be enhanced.

The goals are to:

Provide an opportunity for a substantive discussion

about practical ways to promote better governance and

clean energy in the context of effective regulation of

the electricity sector, drawing on case studies of both

innovative and weak practices

Facilitate an exchange of views among disparate stake-

holders

Identify key considerations for developing a conducive

framework for sustainable energy



16/34

discussion PaPer

Introduction

Concerns over energy security related risks are sparking

new interest in renewable energy technologies and energy

efciency as a means to diversify electricity generation

choices and alleviate dependence on fossil fuels. The reali-

ties of climate change and the need to reduce green house

gas emissions globally have created a new, urgent impetus

to scale up such efforts.

Conventional energy systems are not supportive of sustain-

able energy. In both developed and developing countries

there has traditionally been a focus on large-scale, cen-

tralised generation of electricity using coal, oil, gas, hy-

dropower and nuclear energy that is transmitted over long

distances to centres of use. These have been seen as theroute to plentiful energy at low prices. Standard regulatory

mechanisms are often not conducive to renewable energy,

energy efciency and distributed generation sources which

may require different forms of price controls, investment

incentives, and oversight.

Electricity regulators that are independent of govern-

ment are relatively new institutions in most developing

countries. They have generally emerged in the context of

efforts to reform and restructure the electricity sector to

improve nancial performance and efciency in the elec-

tricity sector. The context for establishing an independentregulatory body has often been to separate political process-

es from decisions about technical issues, and to attract

investment, particularly from the private sector. Social and

environmental considerations have not always been woven

into the mandates of these institutions. In practice, how-

ever, decisions made by regulators frame environmental,

social and economic parameters for the sector.

Electricity Regulation: An Important Arena to

Advance Sustainable Development

The terms on which electricity is priced and sector actors

earn revenues affect how demand for electricity is project-

ed, managed and met. Regulators play an important role

in addressing considerations such as security of electricity

supply, managing adequate reserve margins for electricity,

and extending universal and high quality access to electric-

ity. They are responsible for licensing new power plants

and infrastructure. They may also set service and efciency

standards. All of these functions affect environmental and

social sustainability in the sector, and increasingly, stake-

holders are looking to electricity regulators to play a more

proactive role in supporting renewable energy technologies

and improving energy efciency. These requirements add

new complexities to the challenges of electricity regulation

but the there is a growing body of international experience

regulating clean energy. Regulators in both developed anddeveloping countries are innovating new approaches to

drive investment in renewable energy technologies, and to

incentivise energy efciency, conservation, and demand

management.

Ultimately, the role of the electricity regulator is to in-

terpret national or state level legislation and policies in

practice. Ideally, renewable energy and energy efciency

programmes will be prioritized in electricity policy and

planning processes which seek to maximize the synergies

between clean energy and national economic development

objectives. Government departments have key roles in

oversight of the sector. The processes by which govern-

ment and regulators interact with each other to improve

environmental and social sustainability are crucially impor-

tant. In some countries, governments have led initiatives to

promote efciency or renewable energy. In others, regula-

tors have taken the initiative to develop such programmes.

Their discretion to exercise leadership on these issues,

however, is constrained by their mandate, and the policy

frameworks within which they operate. In all cases, how-

ever, regulators have a key role in the design and adminis-

tration of particular mechanisms topromote sustainable energy.

Regulated utilities and licensees of course play a crucial

role in these frameworks. Ultimately, these actors have to

have to implement programmes, and are likely to be the

subjects of public criticism and discontent if programmes

do not succeed. Even when regulators are proactive, utili-

ties and licensees may be resistant to change. Regulatory

frameworks therefore have to create incentives for deliver-

ing on programme objectives, as well as effective penalties

for a failure to deliver on programmes, and disincentives

for those actors who might block progress on these agen-

das. Utilities and electricity generators always have more

information about what their true costs and constraints

are in implementing sustainable energy programmes. This

information asymmetry is a pervasive challenge for regula-

tors, who must make judgements about what constitutes

reasonable cost.

Regulatory decisions necessarily require judgments to be

made between multiple solutions, with competing interests.

..............................................................................................................................................................

16 Forum report


17/34

Regulators often have limited nancial and human re-

sources at their disposal to execute the basic functions with

which they have been entrusted. They may face practical

constraints in integrating renewable energy and efciency

measures, such as capacity to assess the viability of propos-

als at hand, policy constraints, or direct opposition from

some interests.

Balancing Interests, Managing Tradeoffs, and

Maximising Synergies

Regulators from the rapidly growing developing coun-

tries of South Africa, Mexico, India and Brazil will share

experiences designing and implementing programmes to

promote clean energy in support of economic development

and poverty reduction. The 2010 Forum on Clean Energy,

Good Governance and Electricity Regulation builds on the

insights from the 2008 Forum of Asian electricity regula-

tors from India, Indonesia, Thailand and the Philippines

convened in partnership with the Asian Development Bank

(ADB) and the Lee Kuan Yew School of Public Policy inSingapore (http://electricitygovernance.wri.org).

Our work on regulatory governance in Asia continues, and

we are collaborating with the ADB to convene a Dialogue

on Clean Energy Governance and Regulation alongside its

Asia Clean Energy Forum in June 2010.

..............................................................................................................................................................

India Brazil Sh Afi Mexico

Owhi

S

The 2003 Electricity

A v h wy f

ii fll -

, illy f l

consumers. More than

80% f

iib i -

bli whi.

Si 2004, Pl Abi

de Contra-tao Regulado,

(ACR) f k

(Abi C

Liv, ACL) hv xi i

lll. Th v i

h l by f liiy

i h ACR hh l

wih IPP ii-

b i. Th ACL i

h k.

M h 95% f liiy i

by h liy, Ek.

Th D f Pbli E-

i i h jiy hhl

f Ek. Tii

iib- i l

by Ek, x l

and that which is managed

by iili wihi hi

jii.

Comisin Federal de

Elii (CFE), h

-w liy -

b w hi f

liiy IPP -

ate the remaining balance.

Lz y Fz C (LFC), i

the state-owned distribu-

ly.

Exv

Bodies

Miiy f Pw Miiy f Mi Ey D f Ey D f Pb-

li Ei

Th Ey Si

(SENER)

Pli

Bodies

Cl Eliiy A-

hiy + Nl Pl-ning Commission

Nl Ey Pliy Cil

(CNPE) bli EyPli Cy (EPE) i

illy ibl f

y iy.

D f Ey i -

ibl i l wih NERSA, wih vih f I-

Miiil Ci (IMC)

Energy

SENER, CFE, LFC

Regulatory

structure

I Cl

wll S Eliiy

Regulatory Commissions

Flly l by ANEEL

il by l l

f-k f h-

contracts.

I l Nl

Ey Rl f Sh Afi

(NERSA)

Energy Regulatory Commis-

i A 1995 blih

CRE, whih ily

regulates the electric-

ity industry with some

x f h blily

owned CFE and LFC.

F f

If A

Y (2005) Pi: Rih If

Bill (2010)

Y (2000) Y (2002)

Household

access to

electricity

64.5% 97.8% 75% 97%

Installed genera-

iy

144 GW (2006) 96.6 GW (2007) 50.2GW 53.8 GW (2007)

Total GHG

Emissions

1,866.1 MCO2 (2005) 1,011.9 MCO2 (2005) 422.8 MCO2 (2005) 643.4 MCO2 (2005)

Carbon Intensity 932.8 CO2/kWh 81.8 CO2/kWh 872.6 CO2/kWh 541.3 CO2/kWh

Table 1 | PROFILES OF THE ELECTRICITY SECTOR



18/34

Driving Investment in Renewable Energy

Renewable energy technologies offer many benets. They

can help diversify the electricity mix and reduce depen-

dence on conventional fuels, support efforts to extend

access to electricity in un-served communities, without the

pollution, greenhouse gas emissions, and other environ-

mental impactsassociated with conventional fossil fueledelectricity. In 2008, global investment in renewable energy

exceeded investment in conventional fossil fuels for the

rst time (UNEP, 2009).1

There may be trade-offs, however, between the higher up

front capital costs of some renewable energy technologies

and these potential benets, particularly in a developing

country context where resources are constrained. Further-

more, the intermittency of some forms of renewable energy

raises additional challenges, and may present tradeoffs

from a system management perspective, and raise newconcerns about quality of electricity supply. Renewable

energy technologies still have signicant associated envi-

ronmental and social impacts and that can often be difcult

to overcome. For example, land rights and siting issues can

be contentious, and due process to ensure that the rights of

people impacted by such projects are upheld remains es-

sential. Tensions can also arise between environmental and

social objectives as a result of the costs of feed-in tariffs or

public benets funds. At the same time, renewable energy

technologies are evolving, and regulators need to be aware

of evolving technical possibilities and potential opportuni-

ties in this dynamic space.

Energy Efciency and Demand Side Management

Opportunities to improve the efciency of existing electric-

ity production and use systems in all countries have not

been realized even though they would seem to save both

money and emissions. Conventional energy systems are set

up to incentivize the addition of megawatts of new energy

capacity, rather than nega-watts by reducing energy use

to avoid the need for new capacity. Because the revenues

of actors that supply electricity are derived from their sales,

they often have few incentives to promote programmes that

will reduce the demand for energy, particularly from their

most reliable customers. A variety of policy and regulatory

approaches have sought to overcome these barriers and

promote efciency. An important example is rate regula-

tions that reward utilities for reducing electricity demand

and consumption in key sectors. A surcharge on electricity

generators or electricity rates also may be used to help fund

public benets such as energy efciency and demand-side

management. Energy prices also directly affect consump-

tion. For example, block tariff systems give consumers,

particularly commercial or industrial users, a discount as

their use of electricity increases, which encourages the con-

sumption of energy. Inverted or rising block tariffs offer

the rst block of units at a low rate, followed by succes-

sively higher rates for additional units, which should induce

consumers to reduce their overall use of energy. Somecountries also use rising block tariffs to provide a life-

line allocation of cheaper energy to help poor consumers.

Charging different tariffs for energy consumed at different

times of the day can make the supply more secure, by shift-

ing the demand from peak to off-peak periods.

Climate Change

Energy ministries and electricity regulators are crucial

but often under-represented stakeholders in global effortsto respond to climate change. Climate change is already

affecting the roles and responsibilities of electricity regula-

tors, and creating a new impetus to scale up programmes to

support clean energy. Regulators have to manage possible

tensions between local economic, social and environmental

issues and global challenges such as climate change. Yet a

global regime on climate change could offer nance, capac-

ity building and technology support to promote equitable,

low carbon development in the electricity sector. What

kinds of support would be most helpful from a regulatory

perspective?

Enhancing Regulatory Governance to Support

Sustainable Energy

Ultimately, citizens and consumers pay the costs of elec-

tricity services and decide how to use energy. Stakehold-

ers understanding and support of new pricing systems and

behavioral changes are essential to the success of sustain-

able energy programmes. Engaging sector actors, includ-

ing potential investors and renewable energy producers in

programme design, can also help ensure that incentivesand regulations respond to their needs appropriately. In

addition, more transparent policies, planning, and regula-

tory processes can increase stakeholders understanding

of clean energy initiatives, and enhance accountability for

their implementation.

Transparency about the analysis and assumptions under-

lying proposed measures can serve as the basis of useful

engagement with stakeholders including consumers, renew-

..............................................................................................................................................................

1. Note that renewable energy includes large hydropower under this denition.

18 Forum report


19/34

able energy providers, and citizens and civil society. For

example, making information about incentive programmes

for renewable energy clear and easily accessible to inves-

tors and stakeholders can help build condence and inter-

est in the Background papers for programme. Similarly,

if public benet funds are established to nance energy

conservation, transparency about how these funds are spent

can help identify whether investments are maximizingefciency gains and enhances accountability for the pro-

grammes implementation.

Independent civil society groups in many countries have

recognized the importance of participating in electric-

ity policy and regulatory processes to advocate for public

interests. They have often been important advocates for

sustainable energy and helped monitor the implementation

of government and regulatory decisions. But for such col-

laborative governance approaches to succeed, civil society

actors must have the capacity to provide credible, useful

input.

Conclusion

The Clean Energy, Good Governance and Electricity

Regulation Forum will focus on how transparency, pub-

lic participation, accountability in regulation can support

the design of effective mechanisms, that respond to local

realities, and help regulators respond to changing circum-

stances and challenges that may emerge in practice. It will

create a space for reection on how regulatory mechanismsand procedures can be framed more clearly to help man-

age trade-offs and nd effective new solutions to difcult

challenges of environmental and social sustainability by

considering:

What constraints were faced in seeking to integrate

renewable energy and efciency measures into its

operations?

Can greater information about the terms and rationale

by which sustainable energy resources are being inte-

grated into the energy mix be made available?

Can making such information easily available and

accessible help build stakeholder support for these

initiatives?

Can public hearings and consultations be used to help

regulators understand the nature of tradeoffs associated

with some sustainable energy options, so that these can

be managed better?

How can stakeholders including civil society, business,

local authorities, and community representatives be in-

volved in the design and implementation of innovative

solutions to the challenges of sustainable energy?

Background papers for References and

further reading

Crossley, D. (2004) Demand Management Activities Applicable

to Electricity Networks. Sydney: Energy

Futures Australia.

Hertzmark, D. 2007. Risk Assessment Methods for Power UtilityPlanning. Energy Sector Management

Assistance Program Renewable Energy Special Report. Washing-

ton, DC: World Bank, March.

Harrington, C., D. Moskovitz, A. Austin, C. Weinberg, and E.

Holt. 1994. Regulatory Reform: Removing the

Disincentives. Montpelier, VT: Regulatory Assistance Project.

Eto, J., S. Stoft, and T. Belden. 1994. The Theory and Practice of

Decoupling. Berkeley, CA: Lawrence

Berkeley National Laboratory.

Dixit, S et al. (2007) The Electricity Governance Indicator Tool-kit Benchmarking Best Practice and

Promoting Accountability. Washington DC: World Resources

Institute.

Dubash, N. 2005. Regulation as an Arena for Social Policy: Ex-

amples from Electricity in Asia. Paper

prepared for World Bank Conference on New Frontiers of Social

Policy, December. Available at

http://siteresources.worldbank.org/INTRANETSOCIALDEVEL-

OPMENT/Resources/Dubash.rev.1.pdf.

Nakhooda, S., S. Dixit, and N. Dubash. 2007. Empowering

People: A Governance Analysis of Electricity inAsia. Washington, DC: World Resources Institute and Prayas

Energy Group.

Swisher, J.N., G. Januzzi, and R. Redlinger. 1997. Tools and

Methods for Integrated Resource Planning.

UNEP. Available at http://uneprisoe.org/IRPManual/IRPmanual.

pdf.

UNEP Sustainable Energy Finance Initiative and New Energy

Finance. 2009. Global Trends in Sustainable

Energy Investment 2009 - Analysis of Trends and Issues in the

Financing of Renewable Energy and EnergyEfciency. UNEP.

..............................................................................................................................................................



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..............................................................................................................................................................

Description of the program

The Program is targeted to the improvement of energy ef-

ciency in the residential sector.

The Program pursues the replacement of inefcient refrig-

erators and air conditioners by new efcient models which

comply with the national efciency norms. In order to

achieve so, the Mexican government offers two different

kinds of nancial support to the households:

Direct assistance Grant that covers a part of purchase

and those costs related to the replacement (transporta-

tion of the new appliance to the household and collec-tion and destruction of the old appliance).

Financial assistance - Loan at preferential rate cover-

ing the remaining cost of the equipment, and in some

instances, costs related to the replacement. This loan is

repaid through the electricity bill.

The partial grants are allocated to households with limited

nancial resources (i.e. low energy consumption house-

holds), whereas households with high energy consumption

can only receive loans. Also, depending on the level of

electricity consumption and the fullment of the eligibility

criteria, people may have access to both types of assistance,

or only one. The program rests on a solid network of dis-

tributors of electrical appliances.

The loans are granted by Nan, through the Program

operator, while the recollection of loans is provided by

the national electricity supplier (CFE) using its system for

electricity bill payment.

What prompted the effort and what was the se-

quence of events in brief?

In Mexico, even though almost everyone pays subsidized

electricity tariffs, people feel that they pay too much for

electricity. Therefore, there is an almost general demand

to the government to reduce tariffs. Mexican government,

particularly the Ministry of Energy, believes that increasing

the level of subsidies is not only unaffordable, given the

budget constraints we face, but also that it is not the right

path towards energy efciency.

In November 2008, a new legal framework was set to foster

energy efciency and renewable energies.

In January 2009, when Mexican people started to feel more

dramatically the effects of the international economic crisis

of 2008, the President Felipe Calderon announced several

measures to improve the economy of households. This

Program was among those measures.

In March 2009, the Ministry of Energy launched the

Program.

The issues to consider were: Which appliances should be replaced and which energy

efciency criteria should they meet

Whether lightening should be included in the Program.

What should the government offer in order to get

people to replace their home appliances, given the

maintenance culture of Mexican people

Once we decided to give assistance, what should be

the amount of the assistance and whether it should be a

subsidy or a loan

case study

Program for the substitution of electrical home appliances

in the residential sector in Mexico

Luz Aurora ORTIZ SALGADO

Director General for Distribution of Electricity, and Nuclear Resources

Ministry of Energy

MEXICO

20 Forum report


21/34

..............................................................................................................................................................

How much would we pay for transportation and de-

struction and who should do these tasks.

Which would be the interest rate of the loan and which

would be the period granted to people to repay the loan

Who should be beneted by the Program: every

household, no matter their income, or only low-income

households

Where would the Program be located, given the budgetconstraint

Regulatory Decision-Making and Analysis

There were very intense debates within the government for

2 to 3 weeks, concerning the issue of what would be the

assistance the government should offer. Should the govern-

ment give a grant to completely cover the price of the appli-

ance and the replacement costs, or should the government

only consider offering a loan?

A quite complex but efcient scheme was agreed to super-

sede these dilemmas: the objective population was dened

as low-income people and divided into four groups. The

rst group, with the lowest income range, would be of-

fered a grant of around 175 USD to cover partially the

price of the appliance and also cover the transportation and

destruction costs, and they would also be offered a loan of

175 USD to cover the remaining cost of the appliance. On

the other hand, the fourth group, the one with the highest

income within the objective population, would only receive

a loan of 350 USD to cover the same concepts.

A debate also was brought up regarding the interest rate

that should be charged and on how would the interest rate

be shared: how much should the nancial intermediary

charge and how much should be granted to the program

operator.

The interest rate was set at 12% (plus taxes): 11% was the

lowest rate the nancial intermediary could charge, where-

as 1% would be given to the operator in order to cover the

operational cost related to recovering the loans.

Refrigerators manufacturers saw this program as an oppor-

tunity not only to avoid an increase in unemployment, but

also to gain a higher market share. Therefore, some of them

made adjustments to their production in order to have more

energy efcient models.

The main constraint the government faced was the budget

allocated to the Program. By the end of 2008, we were toldthat an amount of 12 million dollars would be allocated to

the Program, which would be enough to launch the Pro-

gram in a bunch of states, but not in the whole country.

Later we obtained 48 million dollars from the Transition

Fund for Energetic Transition.

We did not explicitly included civil society while designing

the program, but previously to implementing this Program,

in 2008 we implemented a very small project in a few mu-

nicipalities. The operation of the 2008 program was quite

simple, since there were no loans (only subsidies), and

from it we learned:

That people liked an immediate reply to any procedure

they present at government instances

That the larger the grant, the less troubled people are

due to their attachment to the old appliance

That people were not very attracted to replacing their

incandescent bulbs, even if there is no charge for the

new lamps (i.e. they are free).

That the share of air conditioning appliances within

the Program was lower than what we had originally

estimated.

Reections on the Case -- How Might the Outcomes

Been Different If:

It is important to highlight that this is the rst massive

program designed and launched by the Ministry of Energy

in Mexico. The recently issued laws and the changes in the

existing ones provided the Ministry of Energy with more

fundamentals to design and implement programs like this

one.



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Gujarat State, situated in the western part of the country, is

one of the more developed and progressive states of India.

It has a population of 58 million and an area of 196,000 sqkm. The net State Domestic Product (at current prices) in

2008-09 was Rs. 49,2512 as compared to the per capita net

national product of Rs. 40,141 for the country. The per-

capita consumption of electricity for Gujarat in 2007-08

was 1424 kWh as compared to 717 kWh for the country as

a whole.

Gujarat, because of its geographical and climatic condi-

tions, receives abundant solar radiation with a large poten-

tial for solar energy. Gujarat has almost 300 days of clear

sun, with a solar radiation of 5.6-6.0 kWh per sq mt per

day. As early as in the 1980s and 1990s, schemes relating tosolar energy were introduced in Gujarat, particularly with

the creation of the Gujarat Energy Development Agency

(GEDA) in 1979. There were some initiatives even during

the 1970s.

Over the years, several schemes targeting individuals,

communities, institutions and sectors such as industry and

agriculture have been implemented through incentives for

items such as solar cooker, solar water heater and solar

photovoltaic systems for lighting, pumping of water and

street light. For example, over sixty six thousand families

have used solar cookers and over ten thousand families use

home light systems. About 85 hamlets situated in remote

areas, have been provided with stand-alone solar home

light systems comprising 37W solar panel, 75 AH battery

and two lights of 11 W per family to provide light for 4 to

5 hours a day. In addition to home light system, one solar

street light is provided for 10 families. In recent times,

GEDA has tried to promote use of roof-top solar systems.

Seventeen such systems of 10 kW each connected to the

grid at 440 Volts have been installed on government ofce

buildings. About 125 stand-alone solar roof-top systems of

1 kW each have also been installed on government residen-

tial buildings.

In the year 2001, Government of Gujarat introduced an

incentive scheme for energy generation from renewable

sources including solar energy, particularly through PV

technology. This scheme envisaged purchase of energy at

Rs. 2.25 per unit with 1994-95 as the base year and 5%

escalation of the purchase price every year for a period of

10 years from the date of commencement of generation of

power. This scheme specied technical and commercial

aspects such as evacuation of power, metering, wheeling,

third-party sale and banking. It may, however, be noted that

not much happened in respect of solar energy, possibilitybecause of technological and commercial constraints.

The Gujarat Electricity Regulatory Commission (GERC)

came into existence in the year 1999. The GERC issued its

rst tariff order on solar energy on 22 January 2009. This

was in the context of the scheme of grid interactive solar

power generation projects launched by the Ministry of New

and Renewable Energy (MNRE), Government of India. The

scheme announced in January 2008 envisaged a generation

based incentive progarmme as a demonstration project with

50 MW and 10 MW maximum cumulative capacities at

national and state levels respectively. Keeping in view the

MNRE guidelines, GERC determined a tariff of Rs. 3.37

per kWh which was, at that time, the tariff for wind energy

and the highest among the tariffs for energy from renew-

able sources. An additional amount (difference between

Rs.15 and Rs. 3.37) was to be paid by the MNRE as incen-

tive to solar power generators. Reliance Industries and Euro

Solar proposed 5 MW each from the 10 MW quota allotted

by the Government of India to Gujarat. The plants were

to be located in Kutch and Jamnagar districts respectively

case study

Solar Energy in Gujarat:

Some aspects of regulatory decision-making

Dr. P.K. Mishra

Chairman

Gujarat Electricity Regulatory Commission

INDIA

2. Rs: Indian Rupee; US$1=Rs.45 approximately

22 Forum report


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by Euro and Reliance Industries. These projects, however,

were not implemented. The MNRE scheme itself was

discontinued with the introduction of the Jawaharlal Nehru

National Solar Mission.

In the meantime, Government of Gujarat announced a Solar

Power Policy 2009 on 6 January 2009, prior to the proga-

rmme of Vibrant Gujarat Global Investors Summit whichwas held during January 2009. The idea was to encourage

investors to come forward with solar power projects in the

state. The policy envisaged an installed capacity of 500

MW of solar power generation during a period of 5 years

up to 31 March 2014. The policy, inter alia, indicated tariffs

for PV technology based and solar thermal projects. It was,

however, indicated that tariff and other related aspects were

subject to the Regulations and orders of the Gujarat Elec-

tricity Regulatory Commission to be issued from time to

time.

In response to the policy, and promotional measures for

investment in the State, a large number of MoUs were

signed for solar projects, in addition to projects relating to

power and several other sectors. The MoUs basically indi-

cated the intention of the developers and the government.

Further work needed to be done to crystallize the MoUs

into concrete projects and power purchase agreements. The

potential investors were also awaiting the tariff order of

the GERC, which was issued on 29 January 2010. Further

interactions continued. By 7 May 2010, 17 power purchase

agreements for 235 MW were signed. Eleven more devel-

opers have paid the required earnest money deposits for211 MW in order to be able to sign the PPAs by the end of

May 2010. The Government o

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