Genesis develops five-year plan to electrify rural Lesotho

Project name:
Restructuring of the Rural Electrification Unit in Lesotho

Service:
Regulatory economics and accounting
Project appraisal

Sector:
Energy
Infrastructure

Area of Expertise:
Sector strategy and regulatory frameworks
Design of decision-making tools
Financial modelling

Client:
Government of Lesotho

Date:
2016 - 2017

Country:
Lesotho


The Lesotho Government has prioritised rural electrification (RE) to facilitate economic development and alleviate poverty in rural areas, where only 5% of rural households have access to electricity. The high cost of electricity provision is a key challenge, which is driven by low population density and demand by rural users. 

This is exacerbated by the fact that Lesotho is an impoverished country that relies heavily on donor funding. The government set up a Rural Electrification Unit (REU) tasked with advancing RE in the past, but its operational structure did not support effective service delivery and electricity rollout to rural areas. 

It is against this background that the government engaged Genesis to propose a restructured REU.This project is a core decision point in Lesotho’s energy sector reform, which addresses the following key elements:

• The ideal institutional structure and functions best suited to champion RE.

• Outlining the costs for such an institution and the electrification projects.  This is closely linked with a “bankability” assessment – the sources of funding available to the institution and relevant financing arrangements.

• How electrification projects can be structured to recover affordable tariffs from rural consumers and allow project implementers to cover their costs, such that projects are viable.  

Addressing these elements led to the development of a five-year business plan that highlighted opportunities for the transformed REU, and laid out clear detailed steps on the unit’s form, function and management, its proposed project pipeline and financial viability. Additionally, tariff models and methodologies were developed for an array of off-grid renewable plants, balancing the need for adequate cost recovery and affordability.

Genesis conducted a review of other established REUs across Africa, and applied critical thought and creativity in applying lessons learnt from other countries to the context of Lesotho’s political, institutional, economic and legislative environment. 

This analysis was combined with detailed stakeholder engagement which placed the team strongly within the decision-making context in the sector. Tariff modelling and methodologies were informed by best practice tariff methodologies, and Lesotho’s current rural tariff methodology. Various tariff structures for renewable off-grid technologies were modelled, and the level of subsidisation required for such projects were quantified. The models and tariff framework were developed as a dynamic tool to enable the REU to effectively plan its future projects. Further, since the tariff models are based on sound credible regulatory principles, it is expected to attract greater donor funding for such projects moving forward. 

Identifying the ‘locks’ preventing accelerated RE enabled Genesis to craft a new approach to how the REU could overcome the challenges prohibiting it from realising its mandate. 

Genesis analysed the decision-making process and political nuances in the energy sector to map out proposed changes to the institutional arrangements and functions of the REU that could electrify 9,000 rural households over the next five years. Furthermore, donors such as the EU, the World Bank and UNDP have indicated their intention to provide additional funding of €35 million, $30 million, and $3.5 million, if the energy sector is reformed, where the restructuring of the REU is a vital component. Finally, it is important to note the potential environmental benefits which accrue from the analysis. 

The development of renewable energy sources implies that electrification can occur with a smaller environmental impact compared to a scenario where electrification occurs through conventional non-renewable technologies.

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