implication for tariffs. Table 1.3 below summarises pros and cons of each model from the perspective of different stakeholders. Table 1.3 | Comparison of Mini Grid Business Models Considered in this Report Business Model Utility/ Government Private Sector Retail Customers Strengths Weaknesses Public Model Highly reliant on cross subsidies, increasing electricity prices for all ECG/ NEDCo customers No significant role for private sector, only ECG/ NEDCo Benefit of lower-cost electricity than alternatives (e.g., kerosene) for mini grid customers, but higher-cost electricity for main grid customers “Business as Usual”; lower tariffs for mini grid customers; operator already known Requires larger subsidies and/ or higher tariffs for main grid customers; financial burden on utilities; slower pace of electrification Private Model Cost-reflective tariffs ease pressure on public funds or cross subsidy schemes; issue of affordability of tariffs First movers needed; revenue collection risk; bankability is a concern; burdensome, unclear licensing procedures; unclear mechanisms for allocation of subsidies More expensive electricity (but better than no electricity); private sector concession can be more involved in encouraging opportunities for productive use of electricity Faster pace of electrification; lower subsidy required; close contact with customers to increase demand for power Tendering/ marketing process required; no precedent of licensed operators; higher tariffs for customers Mixed Model 1 If O&M by concession, there is an opportunity for cost-reflective tariffs, thus reducing burden on cross-subsidy schemes Private sector exposed to revenue risk from collection of tariffs but does not need to recover capital investment Same as private model above; tariffs potentially lower due to government developing and owning infrastructure Lower cost of capital; slightly lower tariffs Possible conflicts over large maintenance works, reinvestments and upgrades (especially relevant for
hybrid systems) Mixed Model 2 Payment of PPA while charging national tariff to consumers will require subsidies from the government or cross-subsidy from other customers; on the other hand, private generation potentially more efficient (and cheaper) due to incentive of fixed PPA tariff; private sector leverage in rural electrification PPA reduces revenue risk; comparatively easier permitting and licensing procedures make projects more bankable; still lengthy process requiring specific PPA clauses for off grid suppliers Similar to public model; limited interaction of private with demand side Suitable for pilot project; easiest way to involve private sector No precedent of PPAs for suppliers to mini grids yet Community/ Cooperative Model Cost reflective tariffs could ease pressure on public funds but community models known to be highly subsidized Private sector can play role in shareholding or O&M; potentially easier licensing procedures Continuous community involvement in project from outset Design focuses on community needs; community incentives for maintenance Sustainability is a concern (technical and managerial capacity, tendency to charge too low tariffs, requires clear maintenance and reinvestment planning) Assessment of the business models is not a purely technocratic matter that can be left to outsiders. There are some embedded policy issues relating particularly to the current policy of a UNT; the business model decision is ultimately one for the government of Ghana to make.