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Rwanda’s economy has increased at an annual average rate of over eight percent since 2000, with continued projections of strong growth. Expanding energy access is a key priority of the Government of Rwanda’s (GoR) Vision 2050, which envisions meeting 100% electricity access by 2024.[1] To meet these goals, the government predicts that in the coming years, $500 million annually will be required to finance the necessary infrastructure, of which $300 million would need to come from the private sector.[2] Economic growth and energy access will be fueled both through the development of new power generation sources as well as enhanced cross-border trade with other East African neighboring countries.
Rwanda has a current installed generation capacity of 218 megawatts (MW) and has plans to install more than 300 MW in the near future. To achieve this target, the GoR is focusing on diversifying the energy mix and tapping additional natural resource potential, including hydropower and solar photovoltaics (PVs). As the country begins to bring in additional investments to the region, the Rwanda Utilities Regulatory Authority (RURA) is prioritizing the development of sound regulatory frameworks and transparent regulations to create an enabling environment for private sector investment.
Through the support of the United States Agency for International Development (USAID) and Power Africa, NARUC works to strengthen RURA’s capacity to oversee the country’s energy sector while complementing efforts to enhance Rwanda’s role in regional electricity trade in East Africa. RURA recognizes that moving towards cost-reflective tariffs and enhancing resource diversity will help to improve the financial viability of the utility and further stimulate investment in new electricity infrastructure. Therefore, throughout the partnership, NARUC has provided tariff-related support to further develop RURA’s foundational understanding of rate making principles. In addition, NARUC has provided technical assistance to develop distributed energy resource (DER) regulation. This assistance was initiated in response to several industry proposals RURA received requesting licenses and information about the installation of captive solar PV systems, which will feed surplus energy into the grid.
Regulation of Distributed Energy Resources (DERs)
Rwanda has seen a large increase in captive power solar PV system installations from several interested industries, both in off-grid and grid-connected capacities. However, there is no specific regulation for the treatment of large-scale captive power or net metering. In 2021, NARUC helped RURA develop a draft regulation for DERs. The draft regulation includes a robust regulatory framework and guiding language to govern operations and minimize implementation and operational challenges. Once in place, the regulation will enhance certainty and trust in Rwanda’s electricity sector, thus reducing investment risk and helping to create an enabling an environment for third-party investment in DERs.
To accompany the draft regulation, in 2021 NARUC published a white paper titled Approaches to Captive Power Regulation to be used as a regulatory tool and reference for RURA. The white paper compares respective captive power and DER regulations in various countries and outlines potential strategies for implementation to ensure greater power system efficiency. By following the recommendations outlined in the white paper, RURA will be better equipped to manage the growth of DERs in Rwanda and achieve GoR and Power Africa goals of increasing MW and connections within the country.
Tariff Methodologies
Under the Rwanda Energy Policy (2015), the GoR made plans to gradually phase out direct subsidies to the state utility, the Rwanda Energy Group (REG), to encourage the implementation of cost-based electricity rates. Consequently, RURA is concentrating on the development of a robust tariff methodology to ensure the REG is both financially viable and has just and reasonable rates for customers. Rwanda’s ongoing efforts to move toward cost-reflective rates will improve the REG’s ability to recover its costs and further stimulate investment in new electricity infrastructure projects.
During various activities hosted by NARUC in 2017 and 2018, NARUC experts shared international best practices on topics such as revenue requirement, cost of service, customer classes, rate of return, subsidization, cost allocation, and cost functionalization. Consequently, RURA was able to increase its internal capacity to review and analyze tariffs, which plays a large role in its efforts to implement greater cost-reflectivity. For example, during a 2017 partnership exchange, NARUC experts met with RURA staff to discuss using financial models to help determine a utility’s revenue requirement and cost of service as well as examine tariff structures.
As a result of this activity, NARUC developed and provided a customized financial model to support and inform RURA’s future work on tariff setting. This assistance helped RURA identify additional financial data that should be requested from the utility to inform the tariff setting process and learn to use the model to assess the impact of tariff increases on different customer classes. In 2021, RURA reported that they plan to update the financial model to meet current energy sector needs and use it to assist them in tariff revisions.
In 2020, RURA staff developed a tarifffor mini-grids, which is currently being used to analyze tariff requests from mini-grid developers. RURA staff were able to develop this methodology and apply it following their participation in a training on the objectives of price regulation and the techniques and processes regulators employ to achieve them, including calculating the revenue requirement, understanding tariff design, and conducting rate modelling.
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Photo Credit: © F.C.G. / Adobe Stock
Project Dates: 2016 - present
Primary Partner: Rwanda Utilities Regulatory Agency (RURA)
[1] “Vision 2050.” Republic of Rwanda, Ministry of Finance and Economic Planning. https://www.nirda.gov.rw/uploads/tx_dce/Vision_English_Version_2050_-31_Dec_2020.pdf
[2] African Development Bank Group (AfDB). Rwanda Energy Sector Review and Action Plan, p. 8, 2013. http://www.afdb.org/ fileadmin/uploads/afdb/Documents/Project-and-Operations/Rwanda_-_Energy_Sector_Review_and_Action_Plan.pdf