- Streamlining the approval and application processes
- Having the utility obtain the excavation permit or right of way on behalf of client
- Regulating the electrical profession
- Increasing the transparency of connection costs and processes
- Lessening the burden of security deposits
- Measuring SAIDI and SAIDI for all power outages on the network
- Implementing automated systems for outage monitoring and restoration of service
- Increasing transparency and accessibility of existent and new tariffs
- Setting financial deterrents to limit outages
- Notifying customers in advance of planned outages
Many economies have adopted good practices in the area of getting electricity in recent years. These practices contribute to a more efficient electrical connection process and include streamlining procedures with public agencies or within a utility, regulating the electrical profession to ensure the quality of internal wiring, increasing the transparency of connection costs and reducing the burden of utility security deposits. Several initiatives have also been adopted to improve the reliability of electricity supply, including imposing financial deterrents to limit outages, and monitoring power outages and restoring the electrical service through automated systems. Improved access to information also advances electricity services and hence many economies make electricity tariffs and tariff changes publicly available (through websites, newspapers, and so on) and notify customers in advance of the case in planned outages and tariff changes.
Streamlining the approval and application process
The number of procedures to obtain a new electricity connection varies widely. For example, just two procedures are required in the United Arab Emirates, but nine are required in Tajikistan. The main difference is that in Tajikistan the customer must directly obtain several clearances and licenses from multiple agencies. In fact, customers must obtain two separate clearances from the State Energy Supervision’s Office, an excavation permit from the Ministry of Transport and a notification to the Agency for Standard Office. Document processing and long waiting times worsen delays. As a result, connecting to the grid in Tajikistan takes more than ten times as long as it does in the United Arab Emirates.
The easiest way to simplify the process of getting a new electricity connection is to reduce the number of interactions with agencies. Some economies have done this successfully by having customers interact with just one agency—usually the distribution utility—and making sure that the initial connection application includes all the necessary documents. Information is then shared with all the other agencies involved in the connection process without further interactions involving the customer. In 2017 UK Power, a utility in the United Kingdom, rolled out a new software that facilitated direct contact with its subcontractors. As a result, the meter can be installed after the external connection works without customer involvement.
Globally, the United Arab Emirates is among the economies setting the best practice on the number of procedures. It achieved this feat by simplifying the external connection works and meter installation, and by requiring clients to submit an initial application encompassing all the required documentation so that, once lodged, the utility can perform all procedures seamlessly. Furthermore, the internal wiring check is scheduled at the initial application stage, allowing the utility to perform the check while installing the meter. By reducing the number of interactions, the utility imposes fewer burdens on customers and is able to offer a simplified and easier connection process.
Having utility obtain the excavation permit or right of way on behalf of the client
Among the procedures most commonly undertaken by customers is applying to the municipality—or the department of roads or transport—for an excavation permit or right of way to lay the cables for the connection. Customers seeking a connection undertake such a procedure in around 40 economies. Waiting times range from two days in Denmark to three months in Venezuela. The best practice consists of not having a customer apply for the excavation permit or right of way in the first place; instead, the utility should be responsible for obtaining all the required documents. This approach not only decreases the number of interactions between customers and the public authorities but also reduces the time to get a new connection. Typically, utilities have privileged access to the relevant public agencies and can easily provide all the required documentation. The connection process is not delayed while the permit is being obtained as the utility can begin planning the connection works.
Nigeria reduced both the number of procedures and time to issue a new electricity connection in 2017-18 by having the utility—instead of the customer—obtain the right of way. The new practice, instituted by the Nigerian Electricity Regulatory Commission, decreased the time to get a new electricity connection by 14 days.
Regulating the electrical profession
The safety of internal wiring installations is a concern not only for those occupying a building but also for utilities. One customer’s faulty internal wiring can lead to power outages affecting other customers connected to the same grid. Therefore, in most economies, customers are required to comply with specific procedures aimed at ensuring safety and quality. However, different approaches are undertaken to address safety issues.
Some economies address safety by regulating the electrical profession and establishing clear liability arrangements for electrical contractors. In Latvia and Paraguay, for example, the quality of the internal wiring is the responsibility of the electrical contractor that performs the installation. The utility simply requests certification by the electrical contractor that the internal wiring was done in accordance with the prevailing standards, usually established by the relevant professional associations. In Singapore and the United Arab Emirates, the electrician in charge of the internal wiring must be approved by and registered with the appropriate agency, which is responsible for the safety of the internal electrical installation. In both economies, the utilities may refuse applications for new connections if they involve an electrician who is not registered.
In economies where contractors are responsible for much of the external connection works, a good practice is to have a formal database of certified electricians who are qualified to perform electricity connections. This resource helps potential customers identify contractors with the right expertise and experience. In 2016 Ghana’s energy commission launched an application, Certified Electricians, which allows entrepreneurs to find competent electricians and access their contact information.
Other economies—including France, Belgium, Ireland and Portugal—regulate the connection process by requiring customers to obtain additional inspections and certifications from the utility or outside agencies before a new connection is granted. This approach places a greater burden on customers and can result in longer average connection times compared to regulating the electrical profession.
As a first step toward creating a supportive institutional framework for ensuring electrical safety, economies regulate the electrical profession. However, regulating the profession might not suffice if professional standards are weak and qualified electrical professionals are in short supply.
Such risks are even higher in economies where safety checks are lacking, as is the case in several economies in the Middle East and North Africa and Sub-Saharan Africa. At the other extreme are governments that require multiple checks, imposing an excessive burden on customers seeking an electricity connection. In some economies in Europe and Central Asia, two separate checks must be made to internal wiring. Domestic conditions will determine which practice is suited to which economy. Certifications from the utility or outside agencies may be necessary until standards for electrical professionals are enforced and regulated in a way that ensures the safety of electrical installations.
Increasing the transparency of connection costs and processes
It is often challenging for entrepreneurs to locate information related to the grid connection process, the associated costs and the list of electricity providers they can choose from (if applicable). Informed decisions then become difficult to make, especially in some economies where the type of connection works vary depending on the network’s capacity.1 If capacity is constrained, a more complicated connection may be required to expand the distribution network, and new customers may need to cover the required capital investments (for example, the installation of a distribution transformer). This obligation, more common in low-income economies, substantially increases total connection costs.
Connection costs should be as transparent as possible, to allow customers to contest them. As utilities allocate the costs for new connections between existing and prospective customers, they also must balance different considerations of economic efficiency and fairness. The capital works needed to connect specific customers are different from those needed to accommodate projected growth or to improve the safety or reliability of the distribution network. Nonetheless, because it is often difficult to distinguish between the various types of capital works, new customers are often made to pay for investments in the network.
Connection costs are not fully transparent in many economies. Utilities present customers with individual quotes rather than clearly regulated fees aimed at spreading the fixed costs of expanding the distribution network. Costs can usually be divided into two categories: (i) a regulated connection fee based on a formula or set as a fixed price; and (ii) variable costs for the connection, accounting for the actual labor and material required.
Guatemala and Malaysia are two economies that provide clear regulation of connection fees. For the 140 kilovolt-ampere (kVA) connection assumed in the Doing Business case study, costs are fixed and based on an official fee schedule available to all customers. Information on fees also tends to be more easily accessible in high-income economies—in regulation, on websites or through a brochure or notice board at a customer service office. When it comes to electricity tariffs, some utilities also provide more than just the price per kilowatt hour. The utility in Brunei Darussalam, for example, uses an interactive tool to encourage energy saving behaviors. A customer can create a model of energy consumption according to the number of appliances used. Besides promoting understanding of electricity bills, these tools help analyze electricity usage.
The low capacity of a network does not necessarily mean higher costs for customers.2 Utilities can still regulate costs where the new connection requires a more complicated installation that involves installing a distribution transformer. In Papua New Guinea the customer pays the upfront costs associated with a network expansion for a new connection, but the utility later reimburses the customer through deductions to electricity bills.
In addition to costs, utilities should post all the necessary information about procedures and paperwork for new connections on their website, in their office or other public offices. Also, they should post their performance standards (for example, turnaround time). In France, for example, the distribution utility publishes a document outlining different connection schemes and the formulas used to calculate connection costs.
Lessening the burden of security deposits
About half of the 190 economies surveyed in 2018/19 charge security deposits to customers as a guarantee against nonpayment of future electricity bills. Security deposits are particularly common in Sub-Saharan Africa and Latin America and the Caribbean. At the global level, the average amount for the security deposit ranges between one and three monthly electricity bills.3
Because most utilities hold the deposit until the end of the contract and repay it without interest, this requirement represents a substantial financial burden on small and medium-size firms, especially those facing credit constraints. In the Central African Republic, a medium-size company effectively grants the utility an interest-free credit of about ten times income per capita; the firm loses the opportunity to put that money to a more productive use. Considering that security deposits are supposed to protect utilities against the risk of nonpayment, it is not surprising that deposits are more likely to be charged in economies where utilities cannot count on efficient court systems.4 However, utilities might also charge security deposits to improve their cash flow. In 2010 an analysis of 24 utilities in Sub-Saharan Africa found that those with a lower cost recovery ratio are more likely to charge a security deposit (figure 1).5
Where cash flow considerations are not the motivation for charging security deposits—but utilities determine that they must utilize them to deter nonpayment—they should at a minimum consider reducing the security deposit amount. Furthermore, utilities could return the deposit after several years as opposed to at the end of the connection contract. Alternatively, deposits could accrue interest. In around 20 economies utilities allow customers to settle the security deposit with a bank guarantee or bond instead of depositing the full cash amount with the utility. The service cost for such bank guarantees usually amounts to less than the interest that customers would lose on the deposit. More importantly, bank guarantees allow customers to maintain control of their financial assets and improve cash flow.
Measuring SAIDI and SAIFI for all power outages on the network
Firms need an uninterrupted supply of electricity to be competitive. An economy’s electricity supply is one of the main determinants of firm productivity.6 It is, therefore, important for utilities to assess the reliability of the network by quantifying power outages from the perspective of customers. Utility companies do this by calculating two widely used key performance indicators, SAIDI and SAIFI.
The system average interruption duration index (SAIDI) and the system average interruption frequency index (SAIFI) provide data from the perspective of an average customer over a calendar year and focus, respectively, on total outage duration (in hours) and frequency. Measuring SAIDI and SAIFI data is identified as a good practice by the Institute of Electrical and Electronics Engineers (IEEE) and allow distribution utilities to compare their network reliability internationally (over two-thirds of economies worldwide use these metrics). As a result, common standards to measure SAIDI and SAIFI are necessary. Most utilities that calculate SAIDI and SAIFI today capture all power outages (including load shedding) of five minutes or more.
To address the self-reporting bias utilities face, and ensure that the SAIDI and SAIFI indexes reflect the experience of customers, SAIDI and SAIFI should be authenticated by government regulators and made publicly available online. Chile is a good example of an economy with full SAIDI and SAIFI transparency. Chile’s electricity distribution company, Enel Distribución Chile S.A., must provide the SAIDI and SAIFI indexes to the regulator, the Superintendencia de Electricidad y Combustibles. This governmental agency then corroborates that the indexes reflect the experience of customers and publishes the data in an annual report available online.
The number of economies measuring SAIDI and SAIFI continues to increase. In recent years, many economies in Sub-Saharan Africa began collecting this data for their main business city. In 2017 the utility in Rwanda (ERG) started computing SAIDI and SAIFI for Kigali by mobilizing personnel to record all outages in a centralized database and mapping the number of customers per feeder station. Moreover, in 2017 City Power, the electricity company in South Africa, implemented the “Outage Investigation Plan” to track all outages in Johannesburg using SAIDI and SAIFI indexes, including planned outages and load shedding.
Implementing automated systems for outage monitoring and restoration of service
Positive changes to the quality of power supply are best achieved with substantial investment and a long-term approach targeting transmission losses and inadequate generation capacity. Some of these issues are outside of the utility’s control. However, utility companies have practical tools at their disposal to address the source of power failures and restore the service when outages occur.
Whether planned or unplanned outages, the speed and efficiency at which power can be restored depends mostly on the type of control systems and tools available to the distribution utility. The traditional approach for restoring power that is used by many utilities is through dispatching maintenance crews to the fault location following customer calls. Power restoration may take several hours to complete, depending on how quickly customers report the power outage and the maintenance crew locates and solves the problem. Hours without power, in turn, pose financial risks to businesses in the form of equipment and inventory damages and spoilage. Instead of relying on call centers to keep track of power cuts, utilities may significantly reduce power restoration time and equipment damages through electronic systems such as SCADA (Supervisory Control and Data Acquisition) and IMS (Incidence Management System). A modern SCADA system is one of the most cost-efficient solutions; it can help utilities increase reliability through automation and lower costs as well as allow problem areas to be detected and addressed automatically and remotely.
Utilities in more than 130 economies measured by Doing Business benefit from these automated systems to monitor power outages and restore service, allowing them to provide a more reliable service to their customers. An increasing share of economies is also leveraging smart-grid technology to manage electricity demand and needs better. In Mexico, for example, smart meters have been installed in Mexico City and Monterrey to improve electricity delivery to customers.
Increasing transparency and accessibility of existent and new tariffs
Efficient pricing is crucial for a well-functioning power sector. Utilities must recover their costs and make a profit by imposing reasonable tariffs on its customers. At the same time, the private sector considers the cost of electricity when making investment decisions, thereby encouraging the implementation of energy efficiency measures targeted at curbing energy costs. Tariffs, as well as any fee changes, must be transparently communicated to end-users. They can be communicated to consumers online, through printed media, brochures in the utility’s office, public hearings, and so on. This information is important for consumers to be able to plan their expenses, better understand the utility billing system as well as to be able to contest the charges. Businesses want to know in advance of any changes in expenditure so that they can reallocate financial resources accordingly. In some economies, the law requires utilities to announce changes several billing cycles in advance. In others, a regulator ensures that tariff changes are communicated to the public and that adequate information and details are provided so that customers can recalculate prices.
Setting financial deterrents to limit outages
Many economies have established a robust independent regulatory framework with the right oversight and incentives to improve the reliability of supply. Regulators in some economies adopt a strategy to reduce outages by setting a limit on the frequency and duration of outages and then requiring utilities to pay a fine or a compensation to customers if they exceed that limit. In Spain, utilities are obliged to compensate their clients if unplanned outages last over three minutes, in compliance with decree RD1955/2000. Alternatively, regulators may impose a fine on utilities. In Georgia, the regulator imposes a penalty on the utility if the frequency and duration of outages are worse in the current year than in the previous one, and/or if the utility fails to warn customers on upcoming planned outages less than two days in advance.
The amount of such compensations or penalties varies across economies but their existence is correlated with a more reliable electricity supply. Around the globe, cities served by distribution utilities facing such compensations or penalties had on average twenty hours of power cuts on average in 2017; those without any financial deterrents to limit outages experienced interruptions lasting 50% longer.
Notifying customers in advance of planned outages
All utilities must plan outages for scheduled maintenance. However, it is strongly advisable for electricity distribution companies to communicate upcoming planned outages to clients. That way, customers can plan around power outages and even reduce their losses. Depending on the duration of the outages, it is further recommended that clients be notified at least one week in advance and that a second notice be sent a few hours before the planned outage. Some economies even make this a legal obligation. In the Netherlands, for example, the regulator mandates all electricity distribution companies to submit the first client notification 10 days before the planned outage and a second one three days before the scheduled shut-down. Many utilities notify their customers of the time and duration of a planned power outage. Indeed, it is common for outages to be announced on television, in newspapers or on social media. Some utilities notify customers through mailed notifications, as in Switzerland, or even by phone if customers have larger subscribed capacity, as in Saudi Arabia.
1 Doing Business distinguishes between two cases: connecting to the low-voltage network and connecting to the medium-voltage network. The first case involves laying low-voltage underground cables or installing low-voltage overhead wires from the metering point to the closest connection point on the network. The second case usually occurs when the capacity of the utility’s low-voltage network cannot accommodate the power demand of a customer. This case involves installing a distribution transformer and connecting it between the customer’s installation and the utility’s medium-voltage network. According to the standardized case study, the customer requests a nontrivial but still relatively modest 140-kilovolt-ampere (kVA) connection. By comparison, the demand of a residential connection is about 20 kVA.
2 Connection costs are not just a function of the general infrastructure in an economy. They vary significantly among economies within income groups, suggesting room to reduce the cost regardless of existing infrastructure.
3 The number of economies where utilities charge security deposits does not include those where security deposits are rolled over into consumption bills for the first three months (for example, Tunisia and the United States).
4 World Bank. 2010. Doing Business 2011: Making a Difference for Entrepreneurs. Washington, D.C.: World Bank.
5 The cost recovery ratio is based on the average effective tariff and the costs of power production (operating and capital expenditure). Since capital expenditure is a harder data point to get, a replacement cost approach was used in which physical assets on the ground were considered and the unit costs of replacing these assets were used to estimate their total value. These estimates were then averaged over power consumption.
6 Escribano, A., J. L. Guasch, and J. Pena. 2009. Assessing the Impact of Infrastructure Constraints on Firm Productivity in Africa. Working Paper 9, Africa Infrastructure Sector Diagnostic, World Bank, Washington D.C.