## **_Box 3 Small Power Producers and light handed regulation_**

Small Power Producer (SPP) regulations enable expansion of renewable generated electricity through model power purchase agreements, standardized tariffs, and streamlined interconnection and licensing requirements. The regulations provide the legal basis for customers to self-supply with small clean renewable energy or cogeneration generators, and to export excess power (up to 10 MW) to the national utility (either the national grid, or mini-grids). SPPs will only develop if the prices that they receive for their electrical output exceed their own costs of production. For example, where main grid connected SPPs can sell at an administratively set price of about US $.10/kwh, the only SPPs that are commercially viable are cogenerators, some biomass generators and some mini-hydro generators with well-endowed sites. Solar and wind generators are generally not viable at this price level. In Tanzania in some cases (as reported in Graecen, Kahyoza and Mbawala (2010), SPPs will replace some or all of the production of existing diesel generation of mini-grids operated by TANESCO (the national government-owned utility). In other cases, it will bring electricity to communities without electricity. EWURA, the Tanzanian electricity regulator, has made a conscious effort to employ "light handed regulation" in its regulation of SPPs. “L ight handed regulation” means first, minimizing the amount of information that is required; second, minimizing the number of different regulatory requirements and decisions; and third, relying to the extent possible on related reviews by other Tanzanian government entities. An example of the first is that annual reporting requirements for SPPs are a fraction of those required by TANESCO or larger IPPs. An example of the second is that projects under 1 MW are exempt from EWURA licensing, and the SPP program relies on standardized documents as much as possible to minimize the need for case-by-case negotiation. An example of the third is that EWURA has proposed to rely, to the maximum extent possible, on the economic and technical reviews undertaken in electrification grant reviews by the Tanzania Rural Energy Agency (REA). Tenenbaum and Graecen (2010) also provides a typology of SPPs, presents a more detailed and nuanced discussion of the different dimensions of regulation vis-a-via SPPs and, perhaps most importantly, concludes with a several page checklist of real world implementation issues for regulators and government officials who wish to promote SPPs, Thailand and Sri Lanka both have similar SPP regulations in place, and both have encountered – to a certain extent – problems in which companies apply for PPAs with the intention of selling these PPAs at a profit. For example, in Thailand one company accounts for 445 MW of signed PPAs for grid-connected solar PV. None of these projects have yet to be built. Similarly, in Sri Lanka companies have tied up key micro-hydro sites with PPAs that have failed to develop into projects even after a number of years. To discourage this form of „PPA speculation‟ EWURA‟s license approvals „expire‟ after two years, thus giving other developers the chance to move in and develop the site. _Source:_ Greacen Kahyoza and Mbawala (2010), Tenenbaum and Greacen (2010)

# **3. Theoretical hypotheses**

The key determinants of PPPs in renewable-based energy, measured as the existence and amount of investment, are divided into three channels, reported in Table 1. These include (sectoral and economy-wide) governance variables and short and long run drivers, represented respectively by financial crises and climate change variables. We also control for macroeconomic, sectoral and regional variables.

The hypotheses that we are going to test are reported below. Each of the hypothesis is divided in two parts (part A and B), taking into account respectively the key factors affecting the private investor‟s decision to enter the renewable energy market and the amount of investment sunk in renewable energy, because of the different modeling that will be used (as described in Section 3).

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