West Africa: Redesign of Electricity Tariffs for the Ministry of Energy
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October 13, 2023
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Faced with a loss-making financial model for its electricity distribution company, the Ministry of Energy of a West Africa country engaged FTI Consulting to redesign its electricity tariffs from 2024 to 2035. Balancing explicitly economic factors with social efficiency a tariff structure and financial model was developed to allow the countries national utility to recover its costs of producing, distributing and supplying electricity, as well as achieving State targets of development and social equity.
Providing transparency and visibility for economic players and public authorities, the cost recovery principles were redesigned to balance economic and social efficiency through explicit criteria.
- The unique tariff calculation model developed served as a powerful tool to quantify the impact of future energy policies, tariffs evolutions, and investments in the electricity sector - facilitating a rational decision-making process.
- The electricity retails tariffs designed will positively impact the population of the country, granting larger access to power and providing greater visibility for investors and clients.
- In the near and mid-term future, the new tariffs will move the electricity sector from operating at loss to being financially sustainable and improve social equity in energy through cross-subsidies between customer segments to meet the country Government electrification objectives - ultimately enabling sustainable future investments in the grid.
Our Role:
- By defining relevant cost recovery principles our client was able to to ensure the financial viability of the country utility and safeguard the social efficiency of the tariffs - with subsidized electricity to low-income households and encouraging energy efficiency and conservation.
- With extensive stakeholder consultations to understand the economic and social objectives of the Government in the electricity sector, our teams were able to source continuous feedback and suggestions from various public parties so as to ensure stakeholder buy-in.
- Through developing and transferring to a fit-for-purpose financial model our client now has a user-friendly tariff calculation model, enabling the country Government to update and adjust the tariffs as needed in the future - with the means to calculate new tariffs under different scenarios to sustain the costs of the electricity sector and investments in the power production and electricity grid as needed.
Published
October 13, 2023
Key Contacts
Senior Managing Director