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Regulation for off-grid electrification of

isolated rural areas in Guatemala


Andrs Gonzlez Garca*
Comillas Pontifical University, Madrid
May 10th. 2013

ABSTRACT
This paper analyses the power sector regulatory
framework of Guatemala in regards to off-grid
electrification for isolated rural areas. The purpose of
the paper is to identify and propose relevant
policymaking choices in pursue of universal access to
electric power services for low-income population in
isolated or remote rural areas. These measures would
target the lack of access in the last mile that, because
of its inaccessibility or unprofitability, is not expected
to receive connection to the power network in the
medium or even long term.

This level of investment will drop the share of


population without electricity from 19% in 2009 to 12%
in 2030, but will still leave 1.0 billion people without
electricity by then. In 2009 the investment estimated
was US$ 9.1 billion supplying 20 million people with
electricity access and 7 million with advanced biomass
cook stoves. This amount was sourced from multilateral
organizations (34%), domestic government finance
(30%), private investors (22%) and bilateral aid (14%).

Index terms: Universal Access, rural electrification,


off-grid, regulation of the electric power industry,
business models, energy poverty, Guatemala.
Figure 1: Number of people (million) without access to electricity in rural
and urban areas in the New Policies Scenario (IEA, 2010)

I. INTRODUCTION
According to the International Energy Agency, World
Energy Outlook Energy for all (IEA, 2011): modern
energy services are crucial to human well-being and to
a countrys economic development; and yet globally
over 1.3 billion people are without access to electricity
and 2.7 billion people are without clean cooking
facilities More than 95% of the people lacking
access to modern energy services are in either subSaharan Africa or developing Asia and 84% live in
rural areas. Sub-Saharan Africa accounts for only 12%
of the global population, but almost 45% of those
without access to electricity. With no dedicated
policies, the lack of electrification drops to 1.2 by 2030,
while the number of people relying on biomass may rise
to 2.8 billion at that time. The IEA emphasizes: This is
shameful and unacceptable.
The IAE also estimates that the current investment to
new electricity connections between 2010 and 2030
would amount US$ 13 billion in average, most devoted
to new on-grid electricity connections in urban areas.

Achieving electricity for all by 2030 would require an


additional investment of US$ 32 billion per year, split
in on-grid, mini-grid and off-grid isolated solutions
taking into account the regional costs and consumer
density, which added to the US$ 13 billion per year
already committed in the New Policies Scenario, the
total investment for access to electricity would add up
to US$ 915 billion for 2010-2030, 5.3 times greater
than the business as usual investment on new
electrification. We estimate that around US$ 18 billion
per year is needed from multilateral and bilateral
development sources,
* Andrs Gonzlez Garca is with the
US$ 15 billion per
Instituto de Investigacin Tecnolgica,
year
from
the
Universidad Pontificia Comillas, Madrid,
governments
of
Spain. This paper is based on research
developing countries
coordinated by Fundacin Energa Sin
and US$ 15 billion per
Fronteras (Energy Without Borders EsF).
The author is grateful to the EsFs
year from the broad
REGEZRA project partners for their input,
range of actors that
comments and ideas. Any views expressed
form
the
private
here, as well as any errors, are the sole
sector (IEA, 2011).
responsibility of the author.

Addressing the electricity needs of all this population is


a prerequisite to attempt any development strategy. The
United Nations Energy states that Affordable,
accessible and reliable energy supply is critical for
reducing this number of poor people as well as for
economic growth. At (UN Energy, 2005) it establish
energy access as a transversal main beam that sustains
all the Millennium Development Goals.
According to (World Bank, 2010) Access to electricity
is particularly crucial for human development, as
certain basic activities - such as lighting, refrigeration,
running household appliances and operating equipment
- cannot easily be carried out by other forms of energy.
Sustainable provision of electricity can free large
amounts of time and labor, and promote better health
and education. Electrification can help achieve
economic and social objectives. The Poor Peoples
Energy Outlook details the contribution of electricity to
the human development (Practical Action, 2010), as a
basic input for earning a living (Practical Action, 2012),
and as a basic foundation for community services
(Practical Action, 2013).
To this point it is clear that a problem of this magnitude
and complexity cannot be seriously approached without
a specific attention by the government, intervention of
private capital and the involvement of specialized
companies.
Obviously this will only happen if an attractive
business model can be defined. This model must
include: the definition of the appropriate technologies to
be used; a regulatory framework that clearly defines
the rights and obligations of all parties involved and,
specifically, the rules of remuneration for the provision
of the service and the sources of finance for this
activity.

1.

propose a dedicated regulatory framework for the


supply of off-grid electricity to isolated rural areas
in Guatemala, undertaking the challenge of
providing Universal Access to electricity services,
focusing on the most isolated and difficult segment
and
stipulate the public roles with those of companies,
users, local communities and other agents involved
in the off-grid electrification, specifically suited for
to the characteristics and necessities of Guatemala

2.

II.

OVERVIEW OF THE PRESENT STAGE OF


RURAL ELECTRIFICATION IN GUATEMALA

A. Outline of the energy sector situation


According to the Human Development Index of the
United Nations Program for Development (HDI 2013)
Guatemala is ranked 133 in the world. Life expectancy
is 71,4 but the average schooling for adults is 4,1 years.
GNI is US$ 4,235 (2005) and the country suffers from
very high social inequality (0.389) and even higher
gender inequality (0.539). With over 15 million people
and a population density over 135 people/km2.
With a productive profile based mainly in agriculture,
the land use arable is around 12% and the permanent
crops use 5%. Illiteracy rounds 70% and the corruption
index is 2,4 (0=high, 10=low). 75% of the population is
below the poverty line.

A. Towards a suitable regulatory framework


This paper will explore the characteristics of the
regulatory framework of Guatemala, identify whether
there are specific measures in place that would enable
the achievement of universal access to off-grid
electricity in isolated rural areas, study the profile of
these areas in Guatemala, and then propose the
characteristics of the regulatory reform that would lead
to the achievement of this goal by 2030, as global target
established by the United Nations Decade for
Sustainable Energy for All.

B. Objectives
Therefore this paper will try to address two main
targets:

Figure 2: Human Development Index profile of Guatemala 2012.


Source UNDP. Retrieved from
http://hdrstats.undp.org/en/countries/profiles/GTM.html

Regarding energy sources, Guatemala has domestic oil


production and unexploited natural gas reserves. The
main proportion of energy supply comes from fuel
wood, which accounts for more than half of the energy
produced while the installation of geothermal-power is
increasing (RECIPES, 2006). The energy used in 2002
where 5.8 TWh with an annual growth rate of 7.1%.
Guatemala has a very high potential for renewable
energy resources without fully taking advantage of it.
Over 5.000 MW of hydroelectric potential, there are
only 540MW installed. The location of the country and
the stability of the climate cycles also results in a high
solar and wind potential.

Basically in every country of the world, the extension


of electricity service to reach the entire population,
including the less developed and less physically
accessible communities, has been achieved with the
participation of financial support from the existing
electricity consumers. In most developing countries the
contribution of international aid and governmental
funds, in one way or the other, will also be required.

C. Energy poverty and lack of access


The IEA has formulated a multicriteria Energy
Development Index (EDI) resembling the Human
Development Index (HDI) of the United Nations
Development Programme.
Figure 3: Global Horizontal Solar Radiation in Central America
(GEF & MEM, 2005)

As for solar, the total radiation is 200 000 TWh per


year. Capturing 0.05% of this potential will suffice for
the total national energy demand.
Wind potential is, on the contrary, very local and
restricted to the south coast, adding around 35 TWh per
year.
The yearly electricity production is around 6TWh
(2003) and the total consumption after losses 4.3 TWh.
40% of the consumption is used by Industry, 33%
residential and 27% commerce and public services.

B. Universal access perspective


There is no consensus about the definition of universal
access to modern energy services, so we abide by the
definition of (UN Secretary-Generals Advisory Group
on Energy and Climate Change, 2010) that establishes
universal access as access to clean, reliable and
affordable energy services for cooking and heating,
lighting, communications and productive uses,
including the first two levels of energy services:

Figure 5: Energy Development Index country results 2010


(IEA, 2012)

Figure 4: Incremental levels of access to energy services


(UN SG AGECC 2010)

The EDI is composed of four indicators that provide


information about different aspects of energy poverty:
per capita commercial energy consumption, per capita
household energy consumption, share of modern fuels
in households and % of households with access to
electricity (Electrification Rate as defined by the World
Bank).

consumption, or because of orographic accidents that


increase the costs beyond the limits of the Plan de
Electrificacin Rural (PER) through network extension.

Figure 6: Comparison of the Energy Development Index to the Human


Development Index and position of Guatemala. (IEA, 2010)

According also to the World Energy Outlook database


(IEA, 2012) in Guatemala 3 million people lack access
to electricity, 2.35 million live in rural areas. This is one
of the lowest electrification rates1 in Latin America as
shown in Table 1.

As a rule of thumb, off-grid electrification is usually


preferable where grid extension cost is higher than US$
1000 per capita. Mini-grids provide better solutions for
small populations, allowing hybrid generation (solar,
wind, mini-hydro, diesel) but require a distribution
network as well as metering, power regulation, load
limiting in each user and suitable administrative
solutions for billing, fee collection, penalties and
disconnection if required.
Moreover, an analysis of the demand side shows the
present coverage of the interconnected system, the
electrification rates of each department in Guatemala
and the PER, so to determine the number and location
of the settlements that will not be connected to the grid
in the coming 15 years.
A better identification of these areas is based in their
geo-referenced location, analyzed by models and
computer programs that calculate the present situation
of the network, the distance to the communities and the
orographic and topographic characteristics, thus
ascertaining the zones where this new off-grid plan is to
be implemented.
The following map shows the location of these isolated
rural settlements in Guatemala, defined as those not
covered by the national electricity transmission and
distribution networks. It sums up to 3422 settlements
that account for 140 thousand users (households).

Table 1: Electricity Access in 2010 Latin America


(IEA, 2012)

D. Isolated Rural Areas


In this paper we are studying only the challenge of
providing electricity services, setting the focus on
universal access to off-grid electricity in isolated areas
of Guatemala, that are not included in the network
extension planning in the midterm.
The first task is the identification and characterization
of the isolated rural areas in Guatemala. These are the
communities for which the electrification is not
scheduled in the medium term, either due to their
distance to the distribution network, their expected low
1

The International Energy Agency measures the electrification rate as


defined by the World Bank, in terms of % of the population with access to
energy.

Figure 7: Distribution of acknowledged isolated rural settlements in


Guatemala. Source: Rafael Landvar University

According to the actual estimations of the Rural


Electrification Plan, 700 thousand people will not have
access to the power grid in Guatemala by 2030.
Achieving sustainable universal electricity access by
2030 in rural areas requires overcoming several barriers
to electrification, studied by (World Bank, 2010): High
costs of supply, lack of appropriate incentives for
investment, weak implementing capacity, electricity
generation shortage and population growth.
Rural areas are very diverse and some times
individualized innovative solutions are required for
different regions without the same country. For instance
only in Guatemala the number of living indigenous
languages is 26. Isolated rural areas are characterized
by their geographic isolation, low income,
marginalization and weak (or total lack) of government
assistance, lack of water, energy and communications
infrastructure, low service of health, education and
culture. Any policy dedicated to isolated rural areas
must first involve the will of the community, either
because it is a demand from the beneficiaries, or
because the proposal is shared and announced by their
natural leaders, or imposed for strategic regional or
national interests (Arraiza & Conde Zurita, 2011).

E. Profile of the customers


Population from rural areas is characterized for the
extreme poverty. Thus their capacity of payment for
modern energy services is limited. Different pools
carried out by the government of Guatemala show that
the average expenditure of the 600 thousand families
without access to electricity is US$ 2 for candles, 1,5
for batteries, 2,2 for kerosene and a small amount for
matches total between $5 and $6 per moth (not taking
into account externalities as pollution and the impact on
their health. Therefore, the estimation of the market
size of traditional energy in Guatemala is around
US$ 36 million a year.
The user without electricity service is willing to pay for
it, provided that it is user friendly, reliable and efficient.
These families without access must cover their energy
needs using candles, kerosene or batteries. As stated by
(IFC World Bank, 2012) A customers willingness to
pay for a good or service is the second key driver for
the addressable market estimate, and it is based on
customer awareness, expectations and, critically, the
perceived value of the energy solutions. Hence the
importance of adapting the energy services offer to the
expectations of the communities. The first key driver
would be the availability of funding schemes to defer
the costs of connection, if high.
In (Eisman, 2011) the author states that low income of
rural communities population is not the only stumbling

block. Technical problems of the operation of the


systems by the users appear, requiring an affordable
way to maintain and replace worn items, usually before
their usual life. Failure to consider this problem at
design phase is at the base of the low rate of survival of
solar home systems beyond three years in many rural
electrification projects.
This identification and characterization of the affected
communities allowed the development of the
appropriate
cost
benefit
analysis
and
the
implementation plan, taking into account the overall
situation of the electric power system in Guatemala,
(Benavides & Dussan, 2005).

F. Rural electrification grid extension


Guatemala launched in 1971 the first Rural
Electrification Plan (Plan de Electrificacin Rural PER). Up to now PERs have achieved and increased the
national connection rate from 50% to 85%. Despite this
public interest, the historical data shows that both
public utilities and private concessions made little effort
in engaging with large rural electrification programs,
because of the low return of investments and lack of
incentives.
Therefore, the electrification impulse has been
concentrated in areas with lower investment costs and
higher profits. In 2006 many departments have a very
low connection rate2 still.
A quick analysis of Table 2 shows that there are a few
departments that concentrate most of the lack of
electricity access, and it is easily inferred that these
departments with a lower electrification level are also
those with a higher poverty index.
The present Rural Electrification Plan aims to extend
the electricity grid up to 95% of the villages of
Guatemala in 2015, but still the number of areas that
will be out of reach of the network extension in the mid
and long term will be large leaving, with 700 thousand
people still lacking access in 2030.

2
This electrification statistics are measured in terms of number of
connections / electricity contracts (users), not total population with access.

Figure 8 shows the market niches for each technology


according to the monthly spending on energy affordable
by the families/households (274 million households
without electricity corresponding to 1.3 billion people).

Table 2: Summary of the number of isolated rural areas, power users,


electrification cover and poverty index in 2006.
Source: Rafael Landivar University

G. Selection of low-cost technologies for rural


electrification in Guatemala
Electrification technologies are intended to satisfy basic
human needs, but must have an adequate technical
quality, be user friendly and understandable, compatible
and adaptable to the local culture and lifestyle,
appropriable by the communities and integrable in the
social and economic environment (Gonzlez-Garca,
Navas, Pantoja, Villarroel, & Sanjurjo, 2011).
Technologies for off-grid electrification in rural areas
are specific and diverse, so the technical solutions
implemented can be flexibly adapted to the
characteristics of the communities, from lanterns to
household electrification and micro-grids, from solar
power to diesel generators or hybrid systems, and from
basic services as home lighting and communications, to
productive or community services.
As pertinent for the regulatory scheme and business
model analysis, we classify the available technologies
for off-grid electrification according to their network
characteristics and to the monthly costs affordable by
the customers, as can be found in (Eisman, Olivares,
Moreno, Verstegui, & Mataix, 2013; IFC World Bank,
2012):

Solar and rechargeable lanterns.


Solar kits. Portable systems that allow
households to run multiple lights and charge
small devices.
Rooftop Solar Home Systems.
Mini grids. Electricity supplied at community
level (as mini utilities)
Grid Extension.

Figure 8: Global addressable market for lighting technologies.


(IFC World Bank, 2012)

H. Off-grid electrification
Any strategy towards achieving universal access for all
the population to electricity by 2030 would require a
double approach. It will need that all the population
within reach of the power grid should get connected and
serviced, and on the other hand it will require specific
policy measures to provide off-grid power solutions to
the isolated rural areas, whether municipal settlements
or individual households.
The difficulty of off-grid electrification in rural areas
comes not only from the low-income profile of their
populations, as in the case of Guatemala, but because of
cultural and socioeconomic factors.
Affordability of isolated off-grid electrification requires
that the final cost of energy supply must be compatible
with the income level of the population (Izquierdo et
al., 2011), and similar to the cost of traditional energy
sources shifted by the modern power services. This
means that the cost of energy should be around 10-15%
of the incomes, requiring in most cases the provision of
subsidies, preferable for the investment costs of the
supply technologies.
H1. Investment

In every business model considered, the provision


of capital for the investment and initial stages of

the electrification program is one of the most


critical factors for the off-grid electrification.
Potential investors not only look for strong
business cases and a market with high potential
development impact. Securing financing is
fundamental, and for many countries it requires the
building of specific funding mechanisms both for
purchasing of small solar house systems or for the
settling of capital required for a cooperative
installation.

H3. Administrative issues

This next Figure 9 shows the O&M costs and capital


costs per connection in terms of levelized monthly
cost assuming an even distribution of the investment
over the life time of the product. It also includes stoves
technologies.

In Guatemala, according to the information provided by


the Comisin Nacional de Energa Elctrica (CNEE),
the Constitution does not explicitly acknowledges the
right of access to energy for their citizens but the
articles pertaining the rights of people, the duties of the
State, the economic and social regime and the right of
petition and association enshrine the achievement of
universal electrification. The general power law just
establishes and administrative permit as a requirement
for any off-grid rural electrification initiative.

Administrative issues also depend on the choice of


technologies. Small Solar Home Systems only require a
retailer model, where the user purchases the system and
then only requires an insurance or maintenance contract
to ensure the sustainability of the service. On the other
hand, household systems, mini grids and grid extension
collection will need a full metering, billing and fee
collection periodic management.

I. Regulatory framework

But the privatization process in effect with the power


market form in Guatemala had a positive effect in rural
electrification, as part of the benefits obtained by selling
the assets of public utilities were devoted to a rural
electrification fund. Nevertheless lack of posterior
financing and the deficit of the sector does not allow the
continuity of the funding.

J. Tariffs and subsidies

Figure 9: Commercial price of modern energy alternatives


(IFC World Bank, 2012)

H2. Operation and maintenance


Off grid operation and maintenance operation can prove
also critical for the sustainability of off-grid suppliers.
Isolated areas are also characterized for their difficult
communications and transport systems. Time spent in
solving any incidences may burden the off-grid
operators, consuming all their margins if not carefully
planned.
In many cases, as established by (Eisman et al., 2013),
operation and maintenance time will determine the
technological and business approach for a given
community (choices between solar kits or rooftop SHS
for instance) establishing minimum population densities
or service time as decision making criteria.

Electricity prices for network users are regulated for


consumptions under 300kWh per month (around 92%
of the individual customers in Guatemala). The
government intended to reduce the limit for the social
tariff to 100kWh per month (the original aim of the
social tariff was to benefit the average rural user, that
has a consumption around 35kWh per moth) to better
match the population that requires subsidies. The
savings that reducing the number of citizens that enjoy
this social tariff would help finance the rural
electrification programs.

K. Quality of service
According to the national Power General Law, the
National Electric Energy Commission has to protect the
right of the users against the electric distribution
companies. In this regard, the quality of service is one
of the main parameters for the evaluation of the electric
service for users connected to the network.
Nevertheless there are no specifications of quality of
service for users that get their power from off-grid
appliances. In these cases, quality is only guaranteed as

a private commitment between the provider and the


consumer at most.

L. Participation of women

Since the 80s, changes in the structure of the state in


Guatemala allowed the empowerment of women in the
development of the country.

Regarding rural electrification, in 1995 the women in


communities that received electricity were targeted for
productive uses and access to credit, also influencing
the development of specific mechanisms for them.
NRECA realized that targeting women in rural
electrification projects contributed to the sustainability
and success of the projects, as they are in their
households usually, so it shall be they the ones that
should get capacitation for the operation and
maintenance of the equipment.
As for energized health center, women were in charge
of many emergencies, especially for maternity issues.

M. Participation of
indigenous people

the

communities

and

Indigenous people of Guatemala are acknowledged to


suffer today their bigger crisis since the colonization.
Many land owners were displaced of their lands and
live in extreme poverty. Thus, participation of the
indigenous population is key for the development of the
country, as an active subject of development.
The participation of the local leaders in community
issues has been in fact weak, especially in issues with a
regional or national scope. Nevertheless, communities
less exposed to paternalistic processes have proved to
be more creative in the search for solutions to their
problems. (Eberhard & Tenenbaum, 2005) has already
established the principle of non-discrimination and
affirmative policies as a key element of regulatory
reforms.

N. Barriers for off-grid electricity supply


Several barriers have been identify for rural supply in
Guatemala, as:

Access to capital.
Lack of funding by government programs
because of bankruptcy of the energy sector.
Lack of tariffs for off-grid electrification, and
therefore exclusion of this population from the
subsidies associated to the social tariff.
Lack of technical normative regarding quality
of service and installations in off-grid systems.
Lack of monitoring and continuity of grid
extension rural electrification programs.

III.

Lack of institutional instruments and capacity


for the development of off-grid renewable
programs.
Lack of interest by private actors of the power
sector.
Lack of transparent and suitable regulatory
framework.
Lack of information, accessible and verifiable.
Institutional hurdles for the emergence of new
actors and organizations interested in rural
electrification.
Lack of specific programs for off-grid
electrification.
Energy dependency on foreign fossil fuels.

REGULATORY AND BUSINESS MODEL


CHARACTERISTICS FOR OFF-GRID
ELECTRIFICATION IN GUATEMALA

The final purpose of the research is the development of


a regulatory piece that adds on the existing regulation of
Guatemala and covers all the aspects related to the
supply of electricity in isolated rural areas. Involved in
EsF REGEZRA project, this basic regulatory proposal
was presented to and discussed with all the incumbent
agents that participated in the project directly,
integrating their views, needs and interests.
The regulatory outline includes different normative
actuations that affect the legal framework of Guatemala
at different levels, requiring in the end different
lawmaking instruments for their entering into force and
implementation, to be fulfilled by the authorities of
Guatemala. Therefore, this regulatory proposal does not
enter into the lawmaking process and it is conceived as
an independent document subject to various final
possible legal uses.
A main concern for most of the normative proposals has
been to consider the participation of the beneficiary
communities as a key element for the success of this
process. Due to the geographical isolated situation of
these areas, and the weak social cohesion and economic
circumstances of the families, an inadequate
appropriation of the projects by the final users would
endanger the sustainability of this approach, from the
planning stage to the management of the services.
These directives try to overcome the obstacles that have
been identified for the universal electrification of
isolated areas, and to identify the agents responsible of
the activities required in order to set in motion the
electrification process.

A. Regulatory principles

The first result from the research highlights that in


absence of an specific regulation to incentive off-grid
rural electrification in low-income areas, the incidence
of the electrification programs will never reach the
entire population, specially in low-income remote and
isolated areas with difficult access.

The principles and guidelines that should preside the


universal access at isolated rural areas in Guatemala, as
agreed by the incumbents of the project, serving as a
reference for all the other regulatory proposals.
The key issues include legal concepts as relevant as the
right to access electric supply, the government ruling
and the decentralization of authority, economic aspects
applicable to prices and funding, social aspects as the
participation of the communities and the environmental
conditions that this regulation must abide to, subject in
any case to the existing body of law in this matter
(Dietrich, Lpez-Pea, & Linares, 2011).
As a consequence, a set of normative principles was
established, that should preside the regulatory proposals
targeted to universal access in off-grid areas:
1. Universal Electricity Access for all.

The dealer model, centers on developing dealers


that can sell equipment (such as solar PV systems)
to people living far from the grid. This could be the
case of Grameen Shakti (Behrens, Nunez Ferrer,
Carraro, Lahn, & Dreblow, 2011; Gradl &
Knobloch, 2011; Wimmer, 2012).
The concession model is aimed at minimizing
subsidies and encouraging private sector
participation, assuring government control on the
conditions of the concession.
The retailer model involves a decentralized
approach to providing electricity to households
without access to grid service. Variations include
rural electric cooperatives and competitive licensees
(rural service companies).

As already stated, the concession model has not been


effective in Guatemala to address rural electrification in
low-income rural areas. Whereas incentives can be set
to attract the interest of the concessionaries for the rural
electrification, the scarcity of resources by the
government advises favoring alternative models whose
native interests would be closer to the needs of the rural
population. Two models have been analyzed:
decentralized cooperatives and dealers.

2. Fair equitable prices at a reasonable quality.

B1. Decentralized cooperatives

3. Government ruling and control by the


regulatory authorities under the subsidiarity
principle.

This model would target the communities with a


capacity of payment above US$ 8 per month, according
to Figure 8, who can afford mini grids (if the lower
dispersion of the community allows it) or solar home
systems for more disperse households inside the area of
service of the service centers established by the
cooperative.

4. Decentralization,
delegation
coordination of actions.

and

5. Participation and impulse


communities of beneficiaries.

the

from

6. Promotion of private initiative.

According to (Izquierdo et al., 2011) we must consider


the three following roles for micro grids:

7. Competitive conditions.

8. Sustainability conditions.
9. Funding scheme.
10. Concern for the environment.

11. International cooperation.


12. Knowledge capitalization.

B. Business models
Attraction of actors is not trivial in developing
countries, due to the lack of local capacities, regulatory
stability and access to capital (NRECA International,
2001). According to (Besant-Jones, 2006; Saghir, 2005)
there are three possible models suitable for different
conditions and regulations:

Promoter: The organization that conceives and


develops the electrification program, analyzing its
technical and economical viability and achieving
the necessary funds.
Owner of the installation: This is the organization
that owns the assets of the electrification systems. It
can be private or municipal, or even a cooperative
with the necessary capacity to gather the required
funding for the initiative. In the case of
cooperatives, it will guarantee the participation of
the final customers in the decision making process
from the beginning.
Operator: This is the agent in charge of the
operation and maintenance of the initiative. It is
hired by the owner to administer the assets. The
operator is required to have capacity for the
efficient and effective management of the facilities.

The cooperative model would unify these three roles,


promoting the electrification, owning the installation
and also operating and maintaining the system. This
will also have a higher impact in the development of the
community though, as difficult as it would be, it will
require total appropriation of the technology, processes
and benefits of electrification.
In the case of solar home systems there is a much wider
variety and diversity of management models. The
cooperatives can act as service suppliers receiving
down payments for the installation, administering credit
systems for the community or charging fees for the
electrification service. The first two options require the
transference of the ownership to the customer (that can
be a member of the cooperative) while the model of
service fee retains the ownership in the cooperative, but
offers continued service to the customers.

micro-grids, and various generation technologies such


as PV panels, diesel and hydro units analyzing the
economic cash flows over the lifetime up to 20 years.
The proposed model rests on the following canons:

The cost of electrification in isolated rural areas


for Guatemala is greater than the capacity of
payment of the inhabitants of these regions.
Therefore a subsidy scheme will be required to
balance the gap between the higher costs and
the lower capacity of payment. Moreover, the
plausible natural monopoly characteristics of
this activity in principle require a treatment of a
regulated monopoly.

The funding for subsidies can be financed by


different means and sources (cooperation
agencies, public budget, the overall electricity
tariff). In any case, not only to guarantee the
existence, availability and purpose of funding
through time, but also to decouple as much as
possible the funding agencies from the
investors, the creation of a isolated areas
electrification trust is proposed, so that it
gathers together all the available funds, and
then guarantees their exclusive use for
electrification projects in isolated rural areas.
Fencing of this trust is of the essence, avoiding
the possibility of being cannibalized by other
social policies or spurious political interests.

The tariff to be paid by the consumer in isolated


areas should not be higher than the network
social tariff. This approach would require a
maximum fee of 29 USD per year, and the
setting of subsidies for the investments so that
their final costs would not exceed the fees
collected.

A tariff design on descending blocks should


be studied, where the first (more expensive)
block should match well the group of users
with the lowest energy expenditure, households
with a few lights, radios and may be a small TV
set. The second block would be for those homes
that also have additional appliances as
refrigerators, bigger TVs and small productive
uses. The third block would accommodate all
the users with a higher energy consume as
intensive productive labors. This tariff design
incentives the installation of productive uses
(blocks 2 and 3) and thus the income generation
for electrification services (Snchez & ITDG,
2007).

B2. Small Solar Home Systems dealers


This model would enable the electrification of the
population outside the range of service of cooperatives
or concessions (Eisman et al., 2013; Reiche,
Tenenbaum, & Torres de Mstle, 2006). Dealers of
small solar home systems could reach customers in very
remote or inaccessible locations with capacities of
payment below US$ 8,5 but who have a minimum of
$1,25 as per Figure 8. Small solar home systems are
portable, modular and weight less than 7 Kg, Time of
service for operation and maintenance is in these cases
much less relevant, as the equipment can be taken to the
households or brought back to the dealer facilities by
the customers themselves, thus simplifying enormously
the logistic and costs of O&M activities.
The key to this model is the financial management of
micro-credits that would allow low-income population
to purchase this equipment in monthly payments
according to their capacity.

C. Financial framework
(Dietrich et al., 2011) described in depth the proposed
economic framework, which is based in two
fundamental pillars:
1. The key regulatory principles.
2. The main obstacles identified for the
sustainability of existing rural electrification
initiatives, which are:

access to financial capital and

long term sustainability of the projects.

For its development, three different configurations were


considered: home systems, battery charging stations and

Targeted subsidy schemes should avoid that


the application of the tariff blocks would
damage families in specially fragile situations.

operational life of the project. The enterprise shall not


pass through the subsidized costs of service to the
consumers.

The economic magnitude of the required


investments for the electrification of rural areas
in Guatemala has been estimated in 110 million
USD, as a maximum present value of the
cash flow for the next 20 years, including
investment,
depreciation,
operation,
maintenance and replacement costs.

The users should pay a service fee, which ideally


should cover the maintenance costs, but because of a
concern for equity, should not be higher than the social
tariff already existing for population supplied through
the network.

Facilitating the access to this amount of capital,


along with the need to improve the efficiency of
the electrification scheme, requires the
participation of the private sector in the
process.
This participation will be channeled through a
competitive tendering process; so private
investors would compete for the available
subsidies. These subsidies will be granted by
the OECA, which is responsible for the
functioning and implantation of the rural
electrification facilities.
As for the sustainability of the installations, key
success issue for the electrification of isolated
communities, the economic model considers
the following elements as a guarantee for the
long term sustainability of the projects:
o

The electrification equipment will be


owned by the concessionary company in
charge of the electric supply.

The award of the subsidies will be issued,


at least partially, conditioned to the
provision of the power service, and not to
the completion of the initial investment.

So a transition between an investment-based


model towards a service-based model is
proposed, so that rural electrification will be
assessed in terms of continuity and quality of
supply along the useful life of the equipment
installed, and not in terms of installations
implemented.

As a consequence of these measures, the temporal


horizon of the regulation and the supervision of the
service must cover the entire life cycle of the
installations, not only the investment period, and
consider their future replacement or transition to
network supply in the long run.
Accordingly, and regarding the costs to be considered,
they would not only cover the investment costs, but
operation, maintenance and replacement through the

The local authorities are designated as supervision


institutions of the technical and economic conditions of
the electrical service delivered, thus decentralizing the
administrative procedure and enabling the local
appropriation of the technology driven social changes
that accompany the electrification process.
Therefore, a partial amount of the available funds
should be devoted to the technical capacitation and
education in electricity service, uses, maintenance and
technology adaptation for the isolated communities and
other local agents.

D. Rights and responsibilities of the agents


The analysis of the business model includes both the
institutional framework reform and the rules required to
provide a electricity service to the communities located
in isolated areas, supplied by decentralized installations,
establishing that this service is not only feasible but it
contributes to the sustainable development of the
regions where it is implemented.
The institutional and regulatory system design to
promote the electrification of isolated rural areas is
complex, due to the fact that the implementation
process requires multiple actors (public or private
companies, cooperatives, operators, users, regulators,
governments and other agents) each one of them with
its own objectives and diverse incentives. The
application of decentralized technologies in this case
also requires decentralized solutions, usually with the
implication of small and medium size companies, local
and communal authorities, thus requiring an ad-hoc
relationships ecosystem (Richards, 2006).
The research developed included the analysis of other
electrification experiences in isolated rural areas,
reflecting on the institutional model and the required
normative to be implemented.
NRECA (2009) and MercadosEMI (2009) devoted
specific attention to the study of different business
models that involve SMEs, social enterprises and
cooperatives in their institutional framework, according
to electrification experiences in other countries and to
cooperative practices in other sectors in Guatemala.

Mercados EMI (2009) and Ritchie et al. (2006)


provide the analytical structure of the overall
institutional model approach implemented in the
project, taking into account to the diagnostic for
Guatemala and the key regulatory principles described
above. The choice for isolated area concessions,
involving the design of the specific ecosystem of agents
was presented and agreed by the rural electrification
stakeholders in Guatemala.
Electric cooperatives have been a successful model in
developed and developing countries, especially for
remote isolated areas, which are financially less
attractive to for-profit models (Rogers, Hansen &
Graham, 2006). The strength of the cooperative as a
business model for electrification over other
organizational structures implies that this model is
focused on the benefit of the communities themselves,
pursuing reliable supply with appropriate quality and
defines the prices for the services offered to the
members of the cooperative. Despite these advantages,
cooperative models require a minimum critical mass of
members in order to be sustainable, so application in
very remote and scattered populated areas is limited.
Nevertheless, it Is viable to promote a cooperative that
integrates several communities, organized as
cooperative districts (NRECA 2009).
The definition of the role of the public and private
agents of the electrification process is one of the more
relevant issues to be addressed. The principles
governing this relationship must consider the social,
cultural, economical, institutional and relational
dimensions. In order to succeed, the electrification in
isolated rural areas requires the effective coordination
between these agents, a clear definition of the duties
they should assume, and the rights mutually recognized:

National government and authorities: The


corresponding Ministry (Ministerio de Energa
y Minas) shall formulate and coordinate the
policies, national planning of the electric power
industry towards universal access in isolated
areas. INDE shall define and develop the
Electrification Plan for Isolated Rural Areas
(PEZRA), manage the trust funds devoted to
this issue, as well as the auctions and tenders
for the regulated concessions, and the biannual
planning for the implementation of the PEZRA.
For this purpose, inside INDE a technical office
is to be created (OECA) dedicated exclusively
to the management of the electrification
implementation. It will be reinforced by an

Advisory Council with the participation of the


local and regional institutions.

Private institutions, including cooperatives,


power supply companies, equipment supply
enterprises and local entrepreneurs. The
regulation of the rights and duties of these
agents is oriented to ensure the transparency of
the tendering process and other concession
mechanisms; to stimulate free competition,
sustainability of the projects and to guarantee of
return of the investment and collection of fees.

Local and regional administrations: Their


responsibility is the coordination and
communication with the final consumers, local
agents and national administration, and to
assess the power demands and needs of the
local communities to be reflected in the
national plan. They play a crucial role in the
development of the electrification in the last
mile, as well as in the control of the
concessions and the assurance of the fulfillment
of the requirements established in their supply
contracts at each community.

Communities and customers: as a final


beneficiary of the electric supply, their
participation in the process must be properly
articulated, not only in relation to their rights as
quality or continuity of supply (in the terms
established for off-grid power services), but
also regarding their payment commitments, and
safekeeping and secure operation of the power
systems.

IV.

REGULATORY PROPOSALS

Here follow the set of key regulatory proposals for the


adaptation of the regulatory framework of Guatemala to
off-grid electrification.

Proposal 1. Unified definition of


Isolated Rural Area
Isolated rural areas must be defined unequivocally,
determining exactly these areas in the country.
An isolated rural area is one whose connection to the
distribution network is presently unfeasible, either due
to the difficult geographical accessibility or to
economic reasons that in practice result in being
excluded from the Plan for Rural Electrification through
network extension in a time horizon of 15 years.

Proposal 2. Entrust the INDE with explicit


mandate over rural electrification in
isolated areas
The National Institute for Electrification should be
entrusted with an explicit mandate towards isolated
rural areas, including the necessary directives for
launching this initiative in the short term. The planning
should include the basic criteria for prioritizing the
communities to be electrified.

V.

From the analysis of the case of Guatemala and this


regulatory proposal, a series of issues rise that would
require further study:

Proposal 3. Create a dedicated Technical Office


for Electrification in Isolated Rural
Areas
INDE should establish this office (OECA) with powers
to carry out the electrification process in isolated areas,
including an Electrification Counsel in which the
beneficiary communities should be represented.

Proposal 4. Creation of a Isolated


Electrification Trust

Rural

This trust would gather and coordinate the funds


specifically devoted to the investments for the
electrification of isolated rural areas. This trust will be
governed by OECA, that would assign the funds
through public tendering processes defined by INDE,
control the payment of investment installments and
periodic service subsidies, and supervise the quality and
service given to the beneficiaries along the whole life
cycle of the off-grid supply, also allocating particular
incentives or penalties as required by the service
agreements.

Proposal 5. Determination of the tariff


The electric tariff applicable for off-grid electrification
projects should be determined by the National Energy
Commission (CNE) in accordance to the social tariff
established for low-income population with grid supply.

Proposal 6. Procedural transparency


In order to comply with the principles of transparency
and universal publicity, the procedures and conditions
of the calls for tenders shall by officially announced,
including the award criteria, concession decisions and
authorizations granted in each one of the electrification
procedures and tools for isolated rural areas.

Proposal 7. Quality assessment


The CNE will settle the technical and quality
regulations for the electricity services in off-grid areas
that are subject to concessions

LIMITATIONS AND FUTURE WORK

International energy policies and cooperation. The


establishment of a regulatory framework for
Guatemala
to
achieve
universal
off-grid
electrification requires, as noted, additional funding
from international donors and other related energy
policies like environmental mitigation and
adaptation funds. Therefore, the interrelations
between these policies should be carefully studies,
identifying opportunities and synergies.
Replicability and scalability. The business models
hereby proposed can be initiated through pilot
projects that may help identify their key success
factors. The replicability and scalability of these
individual projects to reach the whole population of
Guatemala and to be extended to other countries is
also an interesting field of study.
Long term sustainability. The regulatory framework
should accompany the projects along their whole
life cycle, including their transition into network
connections as a foreseeable final stage.
Sustainability would depend on the maintenance of
the subsidies, when necessary, fencing of
electrification fund but also on social and cultural
measures and on other development policies
coherence.
Synergies and integral development. Electrification
seem to present economies of scale and synergies
with other services as water or communications, but
also (and to a higher degree) with micro credits and
remote payment schemes. The study of these
interactions should strengthen the electrification
effectiveness and impact.
In this same direction, the interaction of
electrification, productive uses and income
generation should be studied to better serve the long
term development of the isolated communities.
Finally, electrification and all the related activities
involved a very diverse and active ecosystem of
actors. The relationships between them and their
governance also pose interesting challenges and
synergies with the electrification targets.

VI.

CONCLUSION

Meeting the challenge of universal access to electric


services in Guatemala requires extending the scope of
the power sector regulation beyond its present
concentration on network extension supply, so to enable
the provision of off-grid electrification to remote rural
isolated areas. These areas are now out of the scope of

the Rural Electrification Plan for the next 15 years, but


they account for more than 30% of the population still
lacking access to electricity in Guatemala, over 700
thousand people.
Universal supply in Guatemala is physically and
economically feasible, and it is a basic element to foster
development processes, including not only basic
services such as education, communications or health,
but also productive growth, specially in these deprived
areas.
The proposed regulation applies to the whole life cycle
of the off-grid electrical service, including its
replacement or future connection to the grid. This
service must be affordable for the final users, and
equitable in comparison to the users supplied by the
distribution networks.
A challenge of this size will need the active
involvement of the private sector and the local
communities,
requiring
adequate
regulatory
mechanisms and attractive business models to foster
their engagement in the long term, including balanced
subsidies that will support the sustainability of the
projects in the long term, and the of private capital,
guaranteeing a fair return of the investment given the
low capacity of payment of the final beneficiaries.
The transposition of this proposal to the present legal
framework in Guatemala and the implementation of the
mechanisms described here are presently under study
by the Ministry of Energy and Mines and by the
National Institute for Electrification (INDE).

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