DFID A Potential Role for AMCs in Promoting Green Mini-Grids in Tanzania

DFID Using AMCs to promote green mini-grids in Tanzania ii Executive Summary This annex considers how Advance Market Commitments (AMCs) might be used to promote the development of green mini-grids in Tanzania. It is one of two case studies Vivid Economics has undertaken to complement its report on the economics of AMCs. The second case study concerns the development of micro-Concentrated Solar Power (CSP) in India. The two cases are intended to illustrate the AMC concept. They are not project proposals and have not been subjected to the level of scrutiny an actual proposal would be. There is an urgent need to improve electrification rates in rural Tanzania. In many parts of rural Tanzania, less than 2% of the population has access to electricity. In line with a wide variety of studies, evidence from Tanzania shows a strong positive correlation between electrification rates and higher levels of economic activity and quality of life. Green mini-grids represent an attractive source of electricity in many parts of rural Tanzania. Many parts of Tanzania are a long way from the main electricity grid and have little realistic prospect of becoming connected in the near future. Solar home systems are a viable option for lighting, but typically do not provide enough power to run machinery and hence do not allow many types of business to flourish. Compared to mini-grids powered by diesel generators, green mini-grids offer the prospect of more reliable and cheaper electricity, as well as greenhouse gas emission reductions. Policies that resemble AMCs have recently been introduced to realise the benefits of green mini-grids in Tanzania. Standardised Power Purchase Agreements (SPPAs) and associated Standardised Power Purchase Tariffs (SPPTs) offer more lucrative and more certain revenues for producers of renewable electricity wishing to sell power to mini-grids (currently all owned by the national state utility, TANESCO) than were available previously. Likewise, the World Bank's Tanzania Electricity Development and Access Project (TEDAP) offers a performance grant of $500 for each additional connection made to a mini-grid. This can be thought of as an AMC: making revenues to be obtained from connections higher and more certain than previously. DFID Using AMCs to promote green mini-grids in Tanzania iii This suggests that any further AMCs will be consonant with the existing policy direction, but also that care needs to be taken not to duplicate the existing policy framework. Two sets of AMC interventions are presented. These …