What are the factors causing the high costs and inadequate supply of electricity? The factors are well documented by the World Bank in its study. Here is the relevant excerpt:
"While Cape Verde will always face high costs of electrification as an archipelago, the present sector arrangements warrant significant upgrading and a reassessment. Electra, the national power utility, supplies electricity in the nine inhabited islands of the country and also operates as a water distribution utility in the four main islands. Electra’s financial performance has deteriorated rapidly, mainly due to lack of investments in generation, delayed and partial tariff adjustments, customer arrears, obsolete equipment, and an escalation of non-technical losses due to fraud and unauthorized connections to the grid.
While Electra increased generation by over 8 percent per year to 250MWh during 2002-06, the current system relies almost entirely on multiple, inefficiently small, expensive and polluting diesel-run generators on each island, connected to clients by an inadequately low voltage transmission system and an ageing distribution network. The resulting power supply disruptions have an immediate negative impact on economic growth, and while power outages are infrequent compared to other countries in the region, there is not yet a widespread practice of back-up generation so that the outages are more costly and disruptive to business.
Even though Cape Verde has exceptional wind energy potential, at 3 percent of generation this is as yet largely untapped. Finally, with losses equivalent to 1.3 percent of GDP in just one year (2007) erasing half of Electra’s net worth, the company is de-capitalized and without credit from its main suppliers, the oil companies. The explicit fiscal risks to the budget are clear, since domestic debt issued to cover Electra’s losses reached approximately 4.5 percent of GDP by the end of 2008.31 Government therefore intends to invest heavily in more sustainable, low-cost wind generation (including via PPPs) and in upgrading the network while seeking greater efficiency in the management of Electra."
- Improving the company’s commercial performance;
- Ensuring the approval of more timely and better calibrated tariff adjustments by the Economic Regulation Agency (Agência de Regulação Económica or ARE);
- Significantly increasing generation and reducing its cost by consolidating generation in larger units using heavy fuel oil, upgrading transmission lines, and pursuing substantial investment in wind energy through independent power producer arrangements (which would also provide a steady supply of energy during non-peak hours for desalination);
- Upgrading the aging distribution network;
- Instituting good corporate governance practices in Electra, with more active monitoring; and
- Mobilizing direct financing and guarantees for Electra.
It is clear that these blackouts are related to the recently elevated world spot prices for diesel oil that is used by Electra's current generators while Electra has limited budgets to pay for the diesel oil. Thus, it is likely that the utility is shutting down its generators to save money.
The Cabeólica wind farm project can't happen soon enough for the public. But it's not enough. More private renewable energy projects are needed and fast. In addition, the government and Electra should implement more of the recommendations. A simple step is to clean house and replace management and government officials who have presided over the energy problems for years. It is curious that such steps are not taken more quickly and with greater urgency.
People probably steal because the cost of electricity is high. In other words, it's a valuable commodity and the high poverty levels in some areas would create an environment where it is worth the user's effort to steal electricity off the grid using illegal connections. ARE probably tries to take this leakage into account in setting electricity rates, but this only makes the price higher, the commodity becomes even more valuable and causes even more theft. From 2005 to 2009, prices increased by 30%; but theft increased by 50% over the same time period! It's a vicious cycle and the numbers confirm it. But it also suggests stealing could be reduced if the price of electricity could be significantly reduced!
- Move very aggressively to encourage the installation of private renewable energy projects which can supply energy to the grid for a significantly cheaper price that Electra can afford on it's own;
- Use heavy fuel oil which is much cheaper than diesel. This is easier said than done. If the generators run diesel, it would be somewhat expensive to reconfigure them for heavy fuel oil. So any expansion by Electra for new generators should use generators configured for heavy fuel oil;
- Do more audits to find unauthorized connections to the grid.
- Install meters ahead of communities, including "clandestine" communities to measure how much energy is supplied to the community versus how much energy is paid for by the community. The idea is to actually find ways to reward the community for doing a better job of closing the gap. For example, offer to reward residents in the community for conservation of electricity and scoring a certain level of paid service to used service. These payments could be made in cash to residents who pay their bills. Money can be a big incentive. It may cause peer pressure within the community.
- Create an "amnesty" program to wipe out all or a portion of past accumulated unpaid electric bills (which Electra might never have collected anyway) but base the amnesty on proxy or demonstrated levels of income. This would give people a "new start" so that they could start paying for usage in future, including some who perceived that they had no alternative but to risk life and limb to make unauthorized connections to the grid.
- Change the pricing structure for domestic use to create pricing tiers for PEAK and OFF-PEAK usage. In other words, give people an option that shows them how they can use electricity in the OFF-PEAK times where the price might be significantly cheaper. This is commonly used in other countries.
- Provide people with more informative electricity bills so that they can see how much electricity they use by the day or time of day or by peak and off-peak periods. This way users have a picture that shows them how to save money.
- Provide people with in-house meters that show the rate at which electricity is being consumed at any given moment. This of course may require certain technology capabilities which may not currently be available but the point is that this should be in Electra's future plans.
- Install pre-pay electricity systems in certain areas where the residents are generally of lower income levels. The problem is that if people do not know how much electricity they are using, or how much it will cost till the end of a month when they finally receive a bill, it may be too late and they may realize that it is much more than they can afford to pay.
- Educate the public about energy conservation and create energy conservation programs, contests and so on. Provide incentives to both among domestic users and businesses.
I've provided 10 ideas. I'd like to hear ideas from readers of this article. Use the comments to express your ideas. All ideas are welcome!