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CEP template 2012

I n d e p e n d e n t u t i l i t i e s r e g u l a t i o n Commonwealth Governance Handbook 2014/15 71 The Global Partnership Output-Based Aid (GPOBA) programme, sponsored by the World Bank, has established a subsidy scheme to encourage up to 4,000 low-income households to connect to the electricity network. This could increase growth by up to one per cent a year for the next four years. However, additional demand will not, in the short term, reduce overall prices due to low usage at subsidy rates by low-income households. This scheme is now in the final stages of implementation. The URA has adopted and released a proposal for a Business Development Incentive (BDI) tariff for the Port Vila network, which offers a lower rate for increased electricity subscriptions (either from existing or new commercial customers). The analysis of the current system peak and system capacity indicates there is an excessive reserve margin, of more than 200 per cent over peak load. The URA has proposed that this excess margin can be utilised by offering discounted prices to certain eligible commercial users. Final order was issued on 5 December 2014 Based on short-run marginal cost, the BDI tariff offers around a 30 per cent discount for incremental electricity use, without any negative impact on the utility. The aim of this incentive is to increase the growth of commercial and high voltage connections and improve growth rates to allow for lower average prices in the medium-term. Objections to this proposal have claimed that the URA does not have the power to implement it, but have not necessarily indicated that it is a bad idea. A contractual investment support fund has been set aside by the utility to subsidise new electricity extensions and connections at the request of the government. These funds have been assigned to electrify part of West Tanna in the hope of stimulating the growth of the local network, which is one of the smallest in Vanuatu. Introducing lower cost generation sources Diversification away from imported diesel is a key strategic aim of government energy policy, and may help to reduce the cost of electricity. The aim of the URA is to ensure that any changes in electricity generation will improve overall efficiency and drive down prices for consumers. The United Arab Emirates Pacific Partnership Fund has announced plans to donate a 500 kW rooftop solar installation for two government buildings in Vanuatu. The URA is currently advising the government and utility providers on the power purchasing arrangements. The total cost saving from the installation is estimated to be 19.4 million vatu per year. Under current proposals the government could receive 75 per cent of benefits from the project, with the remainder transferred to electricity customers (which will result in an approximate 0.14 per cent reduction in prices). The EU is co-financing the construction of a 1–1.5 MW solar installation (and some additional extensions and connections for low-income customers). The estimated cost benefit of this project is 1.5–2 per cent reductions in end use prices. The URA is working to ensure that benefits are passed on to customers concurrent with the commercial operation. In October 2014 a public consultation was launched following the proposal of a 4 MW geothermal power generation station at Takara, in northern Efate, an environmental and social impact assessment report of which had previously been completed. Discussions continue on establishing the cost base for the project. The URA is monitoring the project and is acting to ensure that it will reduce the cost of electricity for all customers while also providing diverse reliable fuel source. In July 2014 the URA ordered UNELCO, the utilities concessionaire for the production, transport and supply of electricity, to implement a limited feed-in tariff (FIT) and net metering programme for solar installations. This would allow customers to install solar panels and benefit from offsetting their electricity consumption. However, UNELCO has refused to comply and has requested a judicial review of the order, claiming that the URA does not have the power to issue such an order. The URA also wishes to confer with utilities providers to ensure their plans for future generation capacity will provide improved efficiency. In June 2014 the URA published preliminary guidelines on the regulation of Independent Power Producers (IPPs) to assist all parties in planning for future investment towards electricity generation in Vanuatu. The URA has also suggested that utilities explore several other avenues such as price hedging, inventory control and, in the long term, the potential for liquid natural gas (LNG) generation. Strengthening regulation of monopoly utilities The URA is working to start a review of UNELCO’s tariffs. The last tariff revision was implemented in May 2011, after a review process that took more than two years (including more than a year of arbitration proceedings). Tariffs and fuel costs have varied more than the contractually required amount to trigger a tariff review – as a result, the URA agreed with UNELCO to commence an electricity tariff review in September 2014. In accordance with contractual requirements, the URA requested and received ministerial approval to carry out the tariff review. However, ministerial approval was later withdrawn. The existence of a concession contract becomes a handicap when setting the electricity price as certain pricing and tariff design provisions are rigidly interpreted by the utility. The utility could delay implementing a price change it does not agree with, by submitting the dispute to an arbitration or court as part of their right to due process. As seen in the cases of the FIT programme, BDI tariff and UNELCO’s tariff review, the URA is handicapped in its ability to effectively (and fairly) regulate UNELCO. The result has been significant delays in implementing these procedures. Overall, this prevents efficiency gains being timely passed through to customers, effectively maintaining high electricity prices. Looking forward The electricity sector in Vanuatu is at a crossroads and the URA is struggling to implement reform in the face of stern opposition from the incumbent utilities. Moving forward, it is important for decision-makers in Vanuatu to decide what kind of electricity sector is desirable. A utilities provider has petitioned for the Vanuatu Supreme Court to perform a judicial review of certain URA decisions, challenging their legality, while the URA continues to vigorously defend its actions, claiming that they are on a solid legal footing. In the


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