October 11, 2018

The new models for energy transition in Africa: A legal review of mini-grid systems in DRC

On 28 September 2018 the ministry in charge of energy in the Democratic Republic of Congo (DRC) published an expression of interest relating to 3 mini-grid projects based on hybrid solar PV technology, with optional storage.

These projects will take the form of a public services concession covering engineering, financing, construction, commissioning and operation of the mini-grid located in three "medium-sized" cities in DRC (the proposed cities for these projects are Bumba – 107,000 inhabitants, Gemena – 138,000 inhabitants and Isiro – 192,000 inhabitants). The concessionaire will market the price directly to the users, and will benefit from an exclusive right to produce electricity within the concession service area.

Note however that this exclusive right to produce electricity will not prohibit entities from producing electricity for their needs, providing that they do not commercialize their electricity in the service area.

It is also interesting to note that the concessionaire will be granted a public lighting concession, as were the first local utilities at the beginning of the 19th century in Europe. One can imagine that these services may be extended in the future to other network services (telecoms, transport, etc.).

The initiative launched by the government of DRC should be welcomed since it illustrates the will to implement, at a municipal level, new energy models based on rapid technological innovations and the price slump in the solar PV industry over the past decade. The emphasis on innovation and support for solar PV is all the more remarkable given the "quasi-religious" vision of hydroelectric technology in the country.

DRC is a huge country in Central Africa with dizzying short term demographical projections: the country has a population of nearly 90 million people today and based on the most recent projections, it may reach 120 million inhabitants by 20301.

The urbanisation rate is already very high and will continue to rise: there are around 10 cities in DRC of over 1 million people, and many more with populations exceeding 100,000 inhabitants2.

The energy sector in DRC is quite modest compared to its huge size: nominal installed capacity in the country is just 3,190 MW3, with 108 electrical plants (62 hydroelectric and 46 thermal) and an operating rate of only 50%, giving rise to an annual production of around 10,360 GW/h. The transmission grid is limited to a 1,744 km double-track line laid out between Inga and Kolwezi, operated on direct current, and is frequently overcharged and operated at its maximum heat capacity4. The distribution grid is, except those in Kinshasa and, to a lesser extent, those existing in the ex-Katanga province, either non-operational or non-existent5.

As a consequence, the choice for mini-grid solutions in such remote and/or poorly serviced areas constitutes the most practical, environmentally-friendly, and probably already, the most economical solution for energy access:

  • Upstream, the slump of solar PV prices of around 70% between 2010 and 2016 and storage prices of 80% between 2008 and 2016 will generate significant savings;
  • Downstream, PAYGO solutions are fostering the financing and bankability of projects on the African continent6. New grid management software is also emerging which will reshape the activity of distribution utilities.

This first mini-grid project in DRC:

  1. is made in the context of the Electric Act dated 17 June 2014 currently in force7;
  2. will take the form of a public services concession whose legal regime will be largely inspired by the French public concession regime;
  3. demonstrates a pragmatic and evidence-based approach of the electrification process.

The legal framework of the electric sector in DRC

The electrical sector in DRC is organised by the Electricity Act dated 17 June 2014. This act applies classically to production, transmission, distribution, importation, exportation and marketing activities of any operator. However the act does not apply to (i) electrical power plants with an installed power capacity equal or less to 50 kw and which are designed for domestic use only, (ii) installations of signal distribution and to (iii) scientific researches facilities8.

The electricity sector, including notably electricity production, is considered by the Electricity Act to be a public service. This will be significant for electrical operators and electricity producers.

The Electricity Act distinguishes several legal regimes in the electricity sector: concession, license, the authorisation, the declaration and the freedom.

More than 4 years after the entry into force of the Electricity Act the vast majority of the supporting regulations setting out the application of the law have not been yet published, and the Agency for Electricity Regulation (ARE) is still not fully operational. In the meantime, the Minister in charge of Energy continues to regulate the energy sector in place of the ARE.

The implementation of the mini-grid project in DRC

The project will take the form of a public services concession contract to be executed with an operator selected on the basis of an international call for tender. This concession contract will be executed pursuant to the main guiding principles applicable in French public contracts, but with interesting specificities.

General principles of the public services concession

The concession generally aims at (i) transferring the activity to a private operator, (ii) without providing any remuneration but (iii) with close control and supervision from the public authority.

The main general principles are as follows:

  • The concessionaire operates the activity at its own risk: it is responsible for the benefits and the losses. It is also responsible for damages caused by construction and public works;
  • The public authority will exercise control over management and define the contractual obligations and objectives in order to ensure that the public service mission isrespected. It can penalize any contractual breach from the concessionaire;
  • The concessionaire gets no remuneration from the public authority but is paid by the users benefiting from the services. This remuneration must comply with public services principles; such as equality, proportionality, etc.

Specificities of the mini-grid concessions

Exclusivity

The concessionaire will benefit from an exclusive right to produce electricity within the service area. This exclusive right will be granted for the duration of the public services concession, which will not exceed 30 years. In return, the concessionaire will pay a fee to the public authority, pursuant to Article 36 of the Electric Act.

This exclusivity may be terminated if the concessionaire fails to satisfy the electricity demand of "solvent" clients. In this case, any power producers will be entitled to generate electricity in the service area provided they sell the entire production to the concessionaire through the execution of a PPA (Article 20 of the Electricity Act).

Public domain

The land used for the power plant and distribution network will be granted by the local municipality and will be subject to certain "public domain rules". It is expected that the generation and distribution assets will be considered as "public works" under the meaning of DRC law, with the consequences that entails (reinforced legal protection).

The concessionaire will be entitled to have in rem rights on the public domain, and will pay fees for occupying public land.

Public services activity

The Electricity Act considers that electricity production and distribution are public service activities, which means that the concessionaire will be required to comply with public services principles, generally defined in the Electricity Act but may be interpreted by the DRC courts, such as: the continuity principle, equality, adaptability, etc. It remains to be seen how these principles will be interpreted by the parties and what they entail in practical terms during the lifetime of the concession. Does it mean for example that any non-connected user, in an identical situation to that connected user, shall be entitled to be connected too? This public services obligations will have to be well defined in order to secure the concessionaire's rights.

Electricity retail tariffs will be mutually agreed by the public authority and the concessionaire. The tariffs may be adjusted at any time, on a proposal from the concessionaire and after validation from the Ministry in charge of Energy.

It is quite usual in public services concessions that the public authority plays a part in setting the tariff. Nevertheless, the concessionaire has the right to the "financial balance" of its contract. Any adjusted tariffs shall be effective immediately without the need to obtain consent from users.

The proposed tariff will reflect the entire costs of the project, pursuant to Chapter 2 of the Electricity Act.

A pragmatic and evidence-based approach: Electricity distribution at the municipal level

The emergence and fostering of mini-grid type solutions, including local production and distribution grids, is not new. These solutions generally use the same legal instruments and stem from the same approach adopted during the electrification process in industrialized countries in a context of strong technological innovations.

The history of electrification followed a similar pattern. The first electricity distribution grids in Europe, and in France in particular, emerged with the granting of public lighting concessions at municipal level, obtained against existing gas companies following many fierce legal and technical debates, notably before the French courts and tribunal9.

Before public electrification, the beginning of electrification started with a handful of individuals in neighbourhoods, willing to benefit from safer technologies than gas for lighting and driving forces. Operating a very limited production, they then connected and sold their surplus to clients such as restaurants, coffee places and little workshops in their neighbourhood10.

The history of electrification has therefore been written at the municipal level, neighbourhood by neighbourhood, city by city before expanding to a national infrastructure.

It is desirable that DRC, by promoting these models of municipal concessions while preserving enough freedom to a sector facing technological change, now writes its own history of electrification.

 

[1] https://www.populationpyramid.net/fr/congo/2050/

[2] Cities with more than 1 million inhabitants: Bukavu (1,01), Kolwezi (1,07), Goma (1,10), Mbandaka (1,18), Mwene-Ditu (1,25), Kananga (1,27), Kikwit (1,32), Tshikapa (1,45), Kisangani (1,60), Lubumbashi (2,09), Mbuji—Mayi (3,36)

[3] Mainly hydroelectric.

[4] There are two additional transmission grids : one between Inga and Kinshasa and one between the ruzizi dam and Goma, South-Kivu.

[5] Distribution grids have electricity losses of around 25% in Kinshasa.

[6] This year, BBOXX has signed with the Governement of DRC an agreement for the electrification of 2,5 million people. In Togo, BBOXX has secured 4 million US Dollars for electrification in Togo. D.Light has obtained 25 million dollars from European Bank of Investment for its activities in Ethiopia, Uganda, Kenya, Tanzania and Nigeria. M-Kopa has secured 10 million dollars from FinCanada.

[7] Electricity Act dated 17 June 2014 on the electricity sector.

[8] Article 2 of the Electricity Act.

[9] French case law is full of decisions from the Conseil d'Etat or Cour de Cassation dated early 20th century, initiated by gas companies against young electrical companies which were seen as illicit competitors

[10] In Bordeaux for example, in 1887, the engineer Emile Tricoche was the first to install, within the premises of a local newspaper, a dynamo-electric machine dedicated to lighting, despite the legal monopoly of the gas company operating in the area.