Who is responsible for regulating mini-grids?

In many countries, including India and Kenya, designated government departments or ministries regulate all electricity service providers. For example, the Central Electricity Regulatory Commission (CERC), an essential power sector regulator in India, is a legal body that functions under the Ministry of Power’s Electricity Act of 2003. CERC’s primary duties include regulating the tariff of government-owned, power-generating companies and electricity tariffs. If mini-grids become widespread in a country, central regulatory agencies may face time and resource limitations as they regulate both larger utilities and smaller mini-grids.

Energy regulations may also be carried out by independent, national regulatory bodies that are expected to be free of political interference. Their ability to regulate mini-grids in remote rural communities, however, may be limited by levels of knowledge, technical skills and human resources. In cases where local skills and resources are limited, communities may delegate their regulatory functions to local agencies and community organizations that are closer to mini-grid projects. When delegating regulatory functions to a different actor, regulators can streamline processes and provide templated documents to expedite the regulatory review process.

As markets for mini-grids expand, limitations in government regulatory agencies and other regulators can prevent those agencies from effectively monitoring projects. Non-traditional actors, such as civil society organizations (CSOs) and/or community-based groups, can play an important role in monitoring and evaluating the performance of mini-grid projects. For example, electricity service agreements (ESAs) can be signed between mini-grid operators and village representatives to include detailed service information, such as hours of electricity availability as well the tariffs to be charged. This approach has been implemented in Cambodia, where the Smau Khney village and a private mini-grid operator signed a 15-year ESA. In addition, the private operator provided an annual budget of $200 to assist the village committee in carrying out its regulatory function.

Partnerships between private-sector mini-grid developers and community organizations enable effective monitoring and evaluation of projects. Establishing platforms for public-private engagement around distributed generation allows CSOs and other community groups to serve as honest brokers who ensure that entrepreneurs provide quality products and services. These partnerships can also encourage community acceptance of projects and provide the information needed by private-sector actors to make informed decisions about their potential markets and to respond to consumer needs at the local level.

REAs are a source of grants for mini-grid projects and often play a de facto regulatory function. National government or independent regulators may delegate regulatory functions to REAs, which are in some cases more closely involved in mini-grid projects. In Africa, more than 15 REAs have been created to promote rural electrification. Tanzania’s REA, the Rural Energy Agency, is one of several that is able to monitor the performance of isolated mini-grid projects.

The recipient communities of mini-grid projects may also participate in the regulatory process by forming electricity regulatory committees or groups that monitor the operations of a private mini-grid operator. ESAs, which define quality of service standards and the roles and responsibilities of both the mini-grid operator and the community, may be used for this type of regulation. REAs may serve as an intermediary by strengthening a community’s technical ability to carry out regulatory functions.

Community groups may also self-regulate community-owned grids. In this case, tariff, billing and collections decisions are all made by the community. These roles are commonly determined by a village committee. It is very important that community regulators set realistic tariff levels, which reflect the actual cost of operation, maintenance and replacement parts to ensure the long-term financial sustainability of the mini-grid project. Projects without cost-reflective tariffs have often failed.

The Chattissgarh Renewable Energy Development Agency (CREDA) micro-grid project is an example of how poorly set tariffs impact the financial sustainability of community mini-grid projects. The project is community-owned, with a private actor responsible for the technical operation and maintenance. The local CREDA mini-grid operators are responsible for collecting payments from the community but are often unable to collect from certain members because of social dynamics. This has forced CREDA and other service providers to stop relying on community tariffs to support their operations and maintenance activities, and it has jeopardized the financial sustainability of the project.

Environmental regulatory bodies may use environmental impact assessments (EIAs) to prevent or mitigate possible negative impacts of a mini-grid project. For example, because large-scale biomass use can increase competition for land that also supports biodiversity and livelihoods, a country may mandate an EIA as a prerequisite for obtaining a license to operate a mini-grid system that utilizes biomass on a significant scale. In Thailand, for example, biomass resources are plentiful, but until recently, only biomass projects 10 MW and larger required EIAs. The government now enforces a code of practice for biomass power plants smaller than 10 MW, which are analyzed to determine the environmental and social impacts throughout their life cycles. In Kenya, all mini-grid projects require a license or permit to operate. The only exemptions are for electricity-generation projects that are below 1 MW and used for self-consumption.

Courts and tribunals can provide guidance during the decision-making process to regulators in regulated industries. This guidance helps reduce regulatory risk by providing certainty, as well as enhancing the understanding of how to improve the design of regulatory regimes.